##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


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|(Mark One)                                    
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|X Box                                          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
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|For the quarterly period ending March 31, 2002
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|OR                                            
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|Box                                            |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____
Commission File Number 0-30791

eFunds Corporation
(Exact name of registrant as specified in its charter)

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|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 39-1506286                          
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|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)
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|Gainey Center II                                               |  |                                     
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|8501 N. Scottsdale Road, Suite 300                             |  |                                     
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|Scottsdale, Arizona                                            |  | 85253                               
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|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (480) 629-7700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    Check Mark   No

The number of shares outstanding of the registrants common stock, par value $.01 per share, at May 7, 2002 was 46,577,672.





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TABLE OF CONTENTS



|                                           |                                                                                                |  |  |  |  |  |  | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION             
|                                           | ITEM 1: FINANCIAL STATEMENTS                                                                  
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                           | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
|                                           | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            
|PART II  OTHER INFORMATION               
|                                           | ITEM 1. LEGAL PROCEEDINGS                                                                     
|                                           | ITEM 5. OTHER INFORMATION                                                                     
|                                           | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURES                                
|EX-2.1                                    
|EX-10.1                                   



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##### Table of Contents






PART I. FINANCIAL INFORMATION

eFUNDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS




ITEM 1: FINANCIAL STATEMENTS

|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |         |         |         | 
|------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | ------- | ----------- | ------- | ------------ | ------- | ------- | ------- | 
|                                                  |                                                                                                                                                               |                           |                                            |         | (unaudited) |         |              |         |        
|                                                  |                                                                                                                                                               |                           |                                            |         | March 31,   |         | December 31,
|(dollars in thousands)                            |                                                                                                                                                               | 2002                      |                                            | 2001   
|                                                  |                                                                                                                                                               |                           |                                            |        
|Current assets:                                   |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Cash and cash equivalents                                                                                                                                     |                           | $                                          | 104,322 |             |         | $            | 101,871 |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Deposits subject to compensating balance arrangement                                                                                                          |                           |                                            | 2,448   |             |         |              | 2,448   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Restricted custodial cash                                                                                                                                     |                           |                                            | 3,839   |             |         |              | 1,124   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accounts receivable  net                                                                                                                                     |                           |                                            | 76,187  |             |         |              | 79,444  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Deferred income taxes                                                                                                                                         |                           |                                            | 10,899  |             |         |              | 10,844  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Prepaid expenses and other current assets                                                                                                                     |                           |                                            | 15,763  |             |         |              | 14,444  |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                  |                                                                                                                                                               | Total current assets      |                                            |         | 213,458     |         |              |         | 210,175 |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|Property and equipment  net                      |                                                                                                                                                               |                           | 72,762                                     |         |             |         | 75,638       |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term investments                             |                                                                                                                                                               |                           | 2,728                                      |         |             |         | 2,747        |        
|                                                 
|                                                 
|                                                 
|                                                 
|Intangibles:                                      |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Goodwill  net                                                                                                                                                |                           |                                            | 93,899  |             |         |              | 87,151  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Other intangible assets  net                                                                                                                                 |                           |                                            | 63,303  |             |         |              | 60,432  |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                  |                                                                                                                                                               |                           | Total intangibles  net                    |         |             | 157,202 |              |         |         | 147,583 | 
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                  | Other non-current assets                                                                                                                                      |                           |                                            | 4,909   |             |         |              | 5,161   |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                  |                                                                                                                                                               | Total non-current assets  |                                            |         | 237,601     |         |              |         | 231,129 |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                  |                                                                                                                                                               |                           | Total assets                               |         | $           | 451,059 |              |         | $       | 441,304 | 
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|Current liabilities:                              |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accounts payable                                                                                                                                              |                           | $                                          | 29,943  |             |         | $            | 25,511  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accrued liabilities                                                                                                                                           |                           |                                            | 28,980  |             |         |              | 35,643  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accrued contract losses                                                                                                                                       |                           |                                            | 13,569  |             |         |              | 14,777  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Deferred revenue                                                                                                                                              |                           |                                            | 18,001  |             |         |              | 12,831  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Long-term debt due within one year                                                                                                                            |                           |                                            | 2,384   |             |         |              | 2,781   |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                  |                                                                                                                                                               | Total current liabilities |                                            |         | 92,877      |         |              |         | 91,543  |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|Long-term debt                                    |                                                                                                                                                               |                           | 2,138                                      |         |             |         | 2,529        |        
|                                                 
|                                                 
|                                                 
|                                                 
|Deferred income taxes                             |                                                                                                                                                               |                           | 7,323                                      |         |             |         | 7,313        |        
|                                                 
|                                                 
|                                                 
|                                                 
|Other long-term liabilities                       |                                                                                                                                                               |                           | 1,865                                      |         |             |         | 2,713        |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                  | Total liabilities                                                                                                                                             |                           |                                            | 104,203 |             |         |              | 104,098 |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|Commitments and contingencies (Notes 4, 7 and 11) |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|Stockholders equity:                             |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Preferred stock $.01 par value; 100,000,000 shares authorized;
no shares issued and outstanding                                                               |                           |                                            |        |             |         |              |        |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Common stock $.01 par value; authorized: 250,000,000 shares; issued and
outstanding: 46,561,487 shares at March 31, 2002 and 46,379,841 at
December 31, 2001) |                           |                                            | 466     |             |         |              | 464     |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Additional paid-in capital                                                                                                                                    |                           |                                            | 407,127 |             |         |              | 404,993 |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accumulated deficit                                                                                                                                           |                           |                                            | (58,098 | )           |         |              | (65,941 | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accumulated other comprehensive loss                                                                                                                          |                           |                                            | (2,639  | )           |         |              | (2,310  | )      
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                  |                                                                                                                                                               | Stockholders equity      |                                            |         | 346,856     |         |              |         | 337,206 |        
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        
|                                                  |                                                                                                                                                               |                           | Total liabilities and stockholders equity |         | $           | 451,059 |              |         | $       | 441,304 | 
|                                                  |                                                                                                                                                               |                           |                                            |         |             |         |              |        

See Notes to Consolidated Financial Statements

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##### Table of Contents



eFUNDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                            |                                                                   |                          |         |                              |         |   |         |        |         | 
|----------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------ | ------- | ---------------------------- | ------- | - | ------- | ------ | ------- | 
|                                                            |                                                                   |                          |         | Three Months Ended March 31,
|                                                            |                                                                   |                          |         |                             
|(dollars and shares in thousands, except per share amounts) |                                                                   | 2002                     |         | 2001                        
|                                                            |                                                                   |                          |         |                             
|Net revenue                                                 |                                                                   | $                        | 133,497 |                              |         | $ | 130,620 |       
|                                                            |                                                                   |                          |         |                              |         |   |         |       
|Operating expenses:                                         |                                                                   |                          |         |                              |         |   |         |       
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Processing, communication, and service costs                      |                          |         | 51,263                       |         |   |         | 48,694 |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Employee costs                                                    |                          |         | 51,018                       |         |   |         | 51,671 |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Depreciation and amortization                                     |                          |         | 9,542                        |         |   |         | 9,789  |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other operating costs                                             |                          |         | 10,192                       |         |   |         | 11,226 |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Special charges                                                   |                          |         |                             |         |   |         | 3,200  |        
|                                                            |                                                                   |                          |         |                              |         |   |         |       
|                                                            |                                                                   | Total operating expenses |         |                              | 122,015 |   |         |        | 124,580 | 
|                                                            |                                                                   |                          |         |                              |         |   |         |       
|Income from operations                                      |                                                                   |                          | 11,482  |                              |         |   | 6,040   |       
|                                                           
|                                                           
|                                                           
|                                                           
|Other income  net                                          |                                                                   |                          | 402     |                              |         |   | 545     |       
|                                                            |                                                                   |                          |         |                              |         |   |         |       
|Income before income taxes                                  |                                                                   |                          | 11,884  |                              |         |   | 6,585   |       
|                                                           
|                                                           
|                                                           
|                                                           
|Provision for income taxes                                  |                                                                   |                          | (4,041  | )                            |         |   | (2,502  | )     
|                                                            |                                                                   |                          |         |                              |         |   |         |       
|Net income                                                  |                                                                   | $                        | 7,843   |                              |         | $ | 4,083   |       
|                                                            |                                                                   |                          |         |                              |         |   |         |       
|                                                            | Weighted average shares outstanding                               |                          |         | 46,473                       |         |   |         | 45,506 |        
|                                                            |                                                                   |                          |         |                              |         |   |         |       
|                                                            | Weighted average shares and potential dilutive shares outstanding |                          |         | 47,806                       |         |   |         | 46,249 |        
|                                                            |                                                                   |                          |         |                              |         |   |         |       
|Net income per share  basic                                |                                                                   | $                        | 0.17    |                              |         | $ | 0.09    |       
|                                                            |                                                                   |                          |         |                              |         |   |         |       
|Net income per share  diluted                              |                                                                   | $                        | 0.16    |                              |         | $ | 0.09    |       
|                                                            |                                                                   |                          |         |                              |         |   |         |       

See Notes to Consolidated Financial Statements

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##### Table of Contents



eFUNDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                 |                                                                                             |                                             |                              |                                                     |       |                    |         |        |       |         |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------- | ---------------------------- | --------------------------------------------------- | ----- | ------------------ | ------- | ------ | ----- | ------- | ------ | -
|                                                 |                                                                                             |                                             |                              |                                                     |       | Three Months Ended
|                                                 |                                                                                             |                                             |                              |                                                     |       | March 31,         
|                                                 |                                                                                             |                                             |                              |                                                     |       |                   
|(dollars in thousands)                           |                                                                                             | 2002                                        |                              | 2001                                               
|                                                 |                                                                                             |                                             |                              |                                                    
|Cash flows from operating activities:            |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Net income                                                                                  |                                             | $                            | 7,843                                               |       |                    | $       | 4,083  |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net income to net cash provided by (used in)
operating activities: |                                             |                              |                                                     |       |                    |         |        |      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Depreciation                                |                              |                                                     | 4,843 |                    |         |        | 4,438 |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Amortization of intangibles                 |                              |                                                     | 4,699 |                    |         |        | 5,351 |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Loss on disposals of property and equipment |                              |                                                     | 106   |                    |         |        | 71    |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Deferred income taxes                       |                              |                                                     | (343  | )                  |         |        | 26    |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Changes in assets and liabilities:          |                              |                                                     |       |                    |         |        |       |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             |                                             | Restricted custodial cash    |                                                     |       | (2,715             | )       |        |       | 884     |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             |                                             | Accounts receivable          |                                                     |       | 3,257              |         |        |       | (19,076 | )     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             |                                             | Accounts payable             |                                                     |       | 4,432              |         |        |       | 666     |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             |                                             | Accrued contract losses      |                                                     |       | (1,208             | )       |        |       | (785    | )     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             |                                             | Other assets and liabilities |                                                     |       | (3,022             | )       |        |       | 2,089   |       
|                                                 |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|                                                 |                                                                                             |                                             |                              | Net cash provided by (used in) operating activities |       |                    | 17,892  |        |       |         | (2,253 | )
|                                                 |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|Cash flows from investing activities:            |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Capital expenditures                                                                        |                                             |                              | (5,372                                              | )     |                    |         | (9,077 | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Acquisitions                                                                                |                                             |                              | (11,444                                             | )     |                    |         |       |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Other                                                                                       |                                             |                              | 26                                                  |       |                    |         |       |      
|                                                 |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|                                                 |                                                                                             |                                             |                              | Net cash used in investing activities               |       |                    | (16,790 | )      |       |         | (9,077 | )
|                                                 |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|Cash flows from financing activities:            |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Net borrowings on line of credit                                                            |                                             |                              |                                                    |       |                    |         | (5,303 | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Payments on long-term debt                                                                  |                                             |                              | (787                                                | )     |                    |         | (499   | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Release of loan guarantee collateral                                                        |                                             |                              |                                                    |       |                    |         | 8,500  |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Issuance of common stock                                                                    |                                             |                              | 2,136                                               |       |                    |         | 374    |      
|                                                 |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|                                                 |                                                                                             |                                             |                              | Net cash provided by financing activities           |       |                    | 1,349   |        |       |         | 3,072  |  
|                                                 |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|Net increase in cash and cash equivalents        |                                                                                             |                                             | 2,451                        |                                                     |       |                    | (8,258  | )     
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                             |                                             | 101,871                      |                                                     |       |                    | 78,731  |       
|                                                 |                                                                                             |                                             |                              |                                                     |       |                    |         |       
|Cash and cash equivalents at end of period       |                                                                                             | $                                           | 104,322                      |                                                     |       | $                  | 70,473  |       
|                                                 |                                                                                             |                                             |                              |                                                     |       |                    |         |       

See Notes to Consolidated Financial Statements

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##### Table of Contents






eFUNDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1  The Company:
eFunds Corporation and its wholly-owned subsidiaries (the Company) provide
transaction processing, risk management and professional services to financial
institutions, retailers, electronic funds transfer networks, e-commerce
providers and government agencies. The Company has four operating segments:
electronic payments; automated teller machine (ATM) management services;
decision support and risk management; and professional services. The
electronic payments segment provides automated clearinghouse (ACH), point of
sale (POS), electronic funds transfer (EFT) and other processing services
across multiple financial networks and electronic benefit transfer (EBT)
services for government agencies. The ATM management services segment provides
ATM deployment, management and branding services. The decision support and
risk management segment provides risk management based data and other products
to financial institutions, retailers and other businesses that assist in
detecting fraud and assessing the risk of opening a new account or accepting a
check. The professional services segment provides EFT software sales, software
applications development, maintenance and installation, and business process
outsourcing services.

The Company was incorporated in Delaware in December 1984 and changed its name
from Deluxe Electronic Payment Systems, Inc. to eFunds Corporation in September
1999. Previously a wholly-owned subsidiary of Deluxe Corporation (Deluxe),
the Company completed its initial public offering (the IPO) in June 2000,
issuing 5.5 million shares of common stock at $13.00 per share for $64.5
million, net of offering expenses. In December 2000, Deluxe distributed all of
its remaining shares of the Companys common stock to its shareholders through
a spin-off transaction.

Note 2  Consolidation and Basis of Presentation:
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated. Investments in unconsolidated
affiliated companies, included in Long-term investments, are accounted for
under the cost method as of March 31, 2002. The consolidated financial
statements should be read in conjunction with the Companys 2001 Annual Report
on Form 10-K as filed with the Securities and Exchange Commission. In the
opinion of management, the accompanying financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows for
the interim periods presented. The results of operations and cash flows for the
interim periods presented are not necessarily indicative of the results of any
future period.

Note 3  Accounting Change:
In January 2002, the Emerging Issues Task Force (EITF) issued EITF No. 01-14,
Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred (formerly EITF Abstracts, Topic No. D-103).
This EITF requires that reimbursements received for out-of-pocket expenses
should be classified as revenue and is effective for financial reporting
periods beginning after December 15, 2001. EITF No. 01-14 requires that
financial statements for prior periods presented be reclassified to comply with
these provisions. The Company typically incurs telecommunications, network
customer fees, travel, maintenance and repair, and other transaction costs that
are billed to and reimbursed by customers. These reimbursements were
previously classified as a reduction to operating expenses. Adoption of EITF
No. 01-14 results in an equal increase to both revenue and operating expenses,
with no resultant impact on the Companys financial position or income from
operations. The effect of the reclassifications made by the Company pursuant
to EITF No. 01-14 was to increase net

4



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##### Table of Contents



revenue and operating expenses by $7.1 million and $6.1 million for the
quarters ended March 31, 2002 and 2001, respectively.

Note 4  Acquisitions:
On January 31, 2002, the Company purchased substantially all of the ATM-related
assets of Hanco Systems, Inc. (Hanco), an independent ATM deployment and
management company. The results of Hancos operations have been included in the
consolidated financial statements since that date. Hanco managed a network of
approximately 2,500 ATMs in 30 states.

The total purchase price of the assets was approximately $11.4 million in cash. The following table summarizes the
estimated fair value of assets acquired at the date of acquisition.

|                       |                       |                     |       |        | 
|---------------------- | --------------------- | ------------------- | ----- | ------ | 
|(dollars in thousands) |                       | At January 31, 2002
|                       |                       |                    
|Current Assets         |                       | $                   | 427   |       
|                      
|                      
|                      
|                      
|Property and equipment |                       |                     | 22    |       
|                      
|                      
|                      
|                      
|Intangible assets      |                       |                     | 4,333 |       
|                      
|                      
|                      
|                      
|Goodwill               |                       |                     | 6,662 |       
|                       |                       |                     |       |       
|                       | Total assets acquired |                     | $     | 11,444 | 
|                       |                       |                     |       |       

The following table summarizes the unaudited pro forma results of operations of
the Company as though the acquisition of Hanco had occurred at the beginning of
each period presented:

|                                                 |         |      |                         |      |  |   |         |      | 
|------------------------------------------------ | ------- | ---- | ----------------------- | ---- |  | - | ------- | ---- | 
|                                                 |         |      | (unaudited)            
|                                                 |         |      | Quarter Ended March 31,
|                                                 |         |      |                        
|(dollars in thousands, except per share amounts) |         | 2002 |                         | 2001
|                                                 |         |      |                         |     
|Revenue                                          |         | $    | 135,214                 |      |  | $ | 134,732 |     
|                                                
|                                                
|                                                
|                                                
|Net income                                       |         |      | 7,860                   |      |  |   | 4,129   |     
|                                                
|                                                
|                                                
|                                                
|Net income per share:                            |         |      |                         |      |  |   |         |     
|                                                
|                                                
|                                                
|                                                
|                                                 | Basic   |      |                         | 0.17 |  |   |         | 0.09 | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Diluted |      |                         | 0.16 |  |   |         | 0.09 | 

In March 2000, the Company paid cash of $20.0 million for an approximate 24%
interest in Access Cash International L.L.C., a Delaware limited liability
company (ACI). ACI was the second largest independent provider of ATM services
in the United States. ACI provided turnkey ATM deployment solutions, including
ATM sales and management activities, as well as branding and advertising
services. The Company accounted for this initial investment under the equity
method of accounting, which requires that an investor record its share of the
losses experienced by a minority owned investor. Accordingly, the
Companys results of operations for the period from January 1, 2001 to
September 30, 2001 include its 24% share of the results of operations of ACI.
The difference of $20.0 million between the amount of the investment and the
underlying equity in the net assets of ACI was being amortized over 15 years
and included in other income-net. Effective October 1, 2001, the Company
acquired the remaining approximately 76% equity interest in ACI. The final
acquisition has been accounted for as a purchase in accordance with the
provisions of Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations. As a result of the
acquisition of the remaining equity interest in ACI,
the Company consolidated ACIs results of operations with its own, as ACI was a
wholly-owned subsidiary from the date of acquisition forward.

The purchase price (Purchase Price) of the remaining 76% of ACI was $44.6
million, of which approximately $40.3 million was paid in cash on or prior to
the closing date of the acquisition. Payment of the balance of approximately
$4.3 million is subject to the satisfaction of certain post-closing conditions.
If these conditions are resolved such that the Company is required to pay any
portion of the

5



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balance of the Purchase Price, such payments will be accounted for as an
increase to goodwill. The Purchase Price was determined by negotiation between
the parties and resulted in the recognition of goodwill as that price exceeded
the estimated fair values of identifiable assets and liabilities and intangible
assets as defined by generally accepted accounting principles.

Note 5  Goodwill and Other Intangible Assets:
Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Intangible Assets (SFAS 142)
which was issued by the Financial Accounting Standards Board in June 2001. SFAS
142 prohibits the amortization of goodwill and intangible assets with
indefinite useful lives. Upon the adoption of SFAS 142, the Company stopped
amortizing the goodwill it recorded in connection with business combinations.
The following table reconciles the net income and earnings per share the
Company reported for the three months ended March 31, 2001 to exclude the
amortization expense, net of taxes, related to goodwill that is no longer being
amortized:

|                                                                   |  |                    |       |      |  |   |       | 
|------------------------------------------------------------------ |  | ------------------ | ----- | ---- |  | - | ----- | 
|                                                                   |  | Three Months Ended
|                                                                   |  | March 31,         
|                                                                   |  |                   
|(dollars in thousands, except per share amounts)                   |  | 2002               |       | 2001
|                                                                   |  |                    |       |     
|Reported net income                                                |  | $                  | 7,843 |      |  | $ | 4,083 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Pro forma amount adjustment for purchased
goodwill amortization    |  |                    |      |      |  |   | 977   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Pro forma amount adjustment for ACI equity
investment amortization |  |                    |      |      |  |   | 206   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Adjusted net income                                                |  |                    | 7,843 |      |  |   | 5,266 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Basic earnings per share                                           |  |                    | 0.17  |      |  |   | 0.12  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Diluted earnings per share                                         |  |                    | 0.16  |      |  |   | 0.11  | 

Other intangible assets, both acquired and developed, subject to amortization
were as follows:

|                   |  |                     |  |                |        |                |         |                   |         |         |         |                |        |             |        |   |        |   |         |   |         |   |         |   |        |   |        | 
|------------------ |  | ------------------- |  | -------------- | ------ | -------------- | ------- | ----------------- | ------- | ------- | ------- | -------------- | ------ | ----------- | ------ | - | ------ | - | ------- | - | ------- | - | ------- | - | ------ | - | ------ | 
|                   |  |                     |  |                |        | March 31, 2002 |         | December 31, 2001
|                   |  |                     |  |                |        |                |         |                  
|(dollars in        |  | Amortization Period |  | Gross Carrying |        | Accumulated    |         |                   |         |         |         | Gross Carrying |        | Accumulated |        |   |        |  
|thousands)         |  | In Years            |  | Amounts        |        | Amortization   |         | Net               |         | Amounts |         | Amortization   |        | Net        
|                   |  |                     |  |                |        |                |         |                   |         |         |         |                |        |            
|Software           |  | 3 to 5              |  | $              | 67,497 |                |         | $                 | (32,539 | )       |         | $              | 34,958 |             |        | $ | 65,079 |   |         | $ | (29,427 | ) |         | $ | 35,652 |  
|                  
|                  
|                  
|                  
|Customer
contracts |  | 15 to 25            |  |                | 15,826 |                |         |                   | (390    | )       |         |                | 15,436 |             |        |   | 11,693 |   |         |   | (195    | ) |         |   | 11,498 |  
|                  
|                  
|                  
|                  
|Other              |  | 3 to 5              |  |                | 72,650 |                |         |                   | (59,741 | )       |         |                | 12,909 |             |        |   | 71,768 |   |         |   | (58,486 | ) |         |   | 13,282 |  
|                   |  |                     |  |                |        |                |         |                   |         |         |         |                |        |             |        |   |        |   |         |   |         |   |         |   |        |   |        | 
|                   |  |                     |  |                |        | $              | 155,973 |                   |         | $       | (92,670 | )              |        | $           | 63,303 |   |        | $ | 148,540 |   |         | $ | (88,108 | ) |        | $ | 60,432 | 
|                   |  |                     |  |                |        |                |         |                   |         |         |         |                |        |             |        |   |        |   |         |   |         |   |         |   |        |   |        | 

For the three months ended March 31, 2002 and 2001, amortization expense for
intangible assets was $4.7 million and $5.4 million, respectively. The
estimated future annual amortization expense for other intangible assets held
at March 31, 2002 is $16 million, $12 million, $7 million, $4 million and $2
million for the years 2003, 2004, 2005, 2006 and 2007, respectively.

SFAS 142 requires that a transitional impairment test be performed on goodwill
balances in existence at the date of its adoption. The Company is required to
complete the first step of this impairment test by June 30, 2002 by assessing
whether the fair values of the component groups net assets are sufficient to
support the recorded values of goodwill and intangible assets. The Company has
performed a preliminary assessment of the goodwill and intangible assets
recorded as of December 31, 2001 and believes that, based upon the results of
this assessment, its goodwill and other intangible assets are not impaired.
The Company will finalize this assessment prior to June 30, 2002.

Note 6  Accrued Liabilities:
Accrued Contract Losses

6



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The Company has historically incurred losses related to its government services
business and has established a reserve to provide for expected losses on
existing long-term service contracts. Charges to the Companys loss reserve are
reflected as a reduction of operating expenses in the Companys consolidated
statement of operations and were as follows:

|                        |  |                         |        |      |  |   |        |  
|----------------------- |  | ----------------------- | ------ | ---- |  | - | ------ | -
|                        |  | Quarter Ended March 31,
|                        |  |                        
|(dollars in thousands)  |  | 2002                    |        | 2001
|                        |  |                         |        |     
|Beginning Balance       |  | $                       | 14,777 |      |  | $ | 22,247 |  
|                       
|                       
|                       
|                       
|Charges to loss reserve |  |                         | (1,208 | )    |  |   | (785   | )
|                        |  |                         |        |      |  |   |        |  
|Ending Balance          |  | $                       | 13,569 |      |  | $ | 21,462 |  
|                        |  |                         |        |      |  |   |        |  

Deluxe has agreed to indemnify the Company for certain future losses arising
from litigation based on the conduct of the government services business prior
to the IPO as well as incremental future losses on contracts of the government
services segment which were in a loss position at April 30, 2000 to the extent
such losses exceed the estimates underlying the Companys $29.2 million loss
reserve balance at April 30, 2000. The Company plans to record any amounts
received from Deluxe under the indemnification agreement as a reduction of
expense when, and if, any additional contract or litigation losses are
recognized. Deluxes total indemnification obligations to the Company are
limited to $14.6 million. No such indemnification obligations have arisen
through March 31, 2002.

Accrued Restructuring Costs
During the first quarter of 2001, restructuring accruals of $3.2 million were
recorded relating to the planned closure of the Companys operations in
Bothell, Washington. The restructuring charges, which include lease
costs and employee severance and related costs, are reflected in operating expenses in
the consolidated statement of operations for the quarter ended March 31, 2001.

The following table summarizes the change in the Companys restructuring
accruals for the quarter ended March 31, 2002:

|                           |  |           |    |        |  |   |       |  
|-------------------------- |  | --------- | -- | ------ |  | - | ----- | -
|                           |  | Number of |    |        |  |  
|                           |  | employees |    |        |  |  
|(dollars in thousands)     |  | affected  |    | Amount
|                           |  |           |    |       
|Balance, December 31, 2001 |  |           | 74 |        |  | $ | 2,408 |  
|                          
|                          
|                          
|                          
|Severance paid             |  |           | 31 |        |  |   | (452  | )
|                          
|                          
|                          
|                          
|Adjustments                |  |           |   |        |  |   |      |  
|                           |  |           |    |        |  |   |       |  
|Balance, March 31, 2002    |  |           | 43 |        |  | $ | 1,956 |  
|                           |  |           |    |        |  |   |       |  

Note 7  Long-term Debt and Credit Facilities:
Long-term debt consists principally of capital lease obligations related to
equipment. Long-term debt was as follows:

|                                |       |      |           |       |              |   |        |       | 
|------------------------------- | ----- | ---- | --------- | ----- | ------------ | - | ------ | ----- | 
|                                |       |      | March 31, |       | December 31,
|(dollars in thousands)          |       | 2002 |           | 2001 
|                                |       |      |           |      
|Capital leases and other        |       | $    | 4,522     |       |              | $ | 5,310  |      
|                               
|                               
|                               
|                               
|Less amount due within one year |       |      | (2,384    | )     |              |   | (2,781 | )    
|                                |       |      |           |       |              |   |        |      
|                                | Total |      | $         | 2,138 |              |   | $      | 2,529 | 
|                                |       |      |           |       |              |   |        |      

The capital lease obligations bear interest at rates ranging from 6.1% to 35.9%
and are due through the year 2004.

In September 2001, the Company obtained a revolving credit facility in the
amount of $20.0 million to replace a facility that was due to expire. This new
facility will mature in September 2002. The lender has issued an irrevocable
letter of credit in the amount of $1.0 million to guarantee the Companys
performance under a government services contract, resulting in a borrowing
capacity of $19.0 million.

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Loans under this facility will bear interest at the applicable prime rate or
the LIBOR rate plus a margin determined by reference to the Companys leverage
ratio. The facility is guaranteed by certain of the Companys subsidiaries and
requires the Company to comply with certain financial and non-financial
covenants. The Company is currently in compliance with all of these
requirements. The Company has not borrowed any funds under this facility
through March 31, 2002.

Note 8  Net Income Per Share:
Net income per share  basic is computed by dividing net income by the weighted
average number of shares outstanding. Net income per share  diluted is
computed by dividing net income by the weighted average number of shares
outstanding and, if dilutive, the weighted average number of common share
equivalents outstanding. Common share equivalents are shares issuable upon the
exercise of outstanding in the money stock option agreements. The Company uses
the treasury stock method to calculate diluted weighted average shares
outstanding. This method assumes that the Company uses the proceeds received
from the hypothetical exercise of dilutive stock options to repurchase shares
at the average market price per share during the period.

The following table reflects the calculation of basic and diluted net income
per share:

|                                                                        |                                                           |      |               |        |  |  |   |        | 
|----------------------------------------------------------------------- | --------------------------------------------------------- | ---- | ------------- | ------ |  |  | - | ------ | 
|                                                                        |                                                           |      | Quarter Ended
|                                                                        |                                                           |      | March 31,    
|                                                                        |                                                           |      |              
|(dollars and shares outstanding in thousands, except per share amounts) |                                                           | 2002 |               | 2001  
|                                                                        |                                                           |      |               |       
|Net income per share  basic:                                           |                                                           |      |               |        |  |  |   |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Net income                                                |      | $             | 7,843  |  |  | $ | 4,083  | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Weighted average shares outstanding                       |      |               | 46,473 |  |  |   | 45,506 | 
|                                                                        |                                                           |      |               |        |  |  |   |       
|                                                                        | Net income per share  basic                              |      | $             | 0.17   |  |  | $ | 0.09   | 
|                                                                        |                                                           |      |               |        |  |  |   |       
|Net income per share  diluted:                                         |                                                           |      |               |        |  |  |   |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Net income                                                |      | $             | 7,843  |  |  | $ | 4,083  | 
|                                                                        |                                                           |      |               |        |  |  |   |       
|                                                                        | Weighted average shares outstanding                       |      |               | 46,473 |  |  |   | 45,506 | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Dilutive impact of stock options and stock purchase plans |      |               | 1,333  |  |  |   | 743    | 
|                                                                        |                                                           |      |               |        |  |  |   |       
|                                                                        | Weighted average shares and dilutive shares outstanding   |      |               | 47,806 |  |  |   | 46,249 | 
|                                                                        |                                                           |      |               |        |  |  |   |       
|                                                                        | Net income per share  diluted                            |      | $             | 0.16   |  |  | $ | 0.09   | 
|                                                                        |                                                           |      |               |        |  |  |   |       

Note 9  Comprehensive Income:
The Companys total comprehensive income for the quarters ended March 31, 2002
and 2001 was $7.5 million and $3.8 million, respectively. The Companys total
comprehensive income consists of net income and foreign currency translation
adjustments.

Note 10  Business Segments:
As a result of restructuring, integration initiatives and its ATM acquisition
strategy, the Company has reorganized its segments to consolidate government
services with its previous electronic payments segment. In addition, new
segments consisting of ATM management services, decision support and risk
management, and professional services have been separately identified. The
Company reports segment information consistent with the way management
internally disaggregates its operations to assess performance and to allocate
resources. The electronic payments segment includes ACH, POS, EFT and other
processing services across multiple financial networks, and EBT services for
government agencies. The ATM management services segment consists of ATM
deployment, management and branding services. The decision support and risk
management segment provides risk management based data and other products to
financial institutions, retailers and other businesses to assist them in
detecting fraud and assessing the risk of opening a new account or accepting a
check. The professional services segment provides EFT software sales, software
applications development, maintenance and installation, and business process
outsourcing services.

8



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The accounting policies of the segments are the same as those applied to the
Company on a consolidated basis. For internal reporting purposes, the Company
groups costs based upon managerial control. The majority of these managed cost
groups may be directly assigned to a reportable segment. For cost groups
supporting more than one reportable segment, the costs are assigned based upon
the product line or project benefited. The Company does not allocate expenses
that benefit all segments and are corporate or administrative in nature. These
costs include, but are not limited to, legal, accounting, human resources, risk
management, and executive expenses. Net special items consist of a $3.2
million special charge in the quarter ended March 31, 2001 related to the
closure of the Companys Bothell, Washington operations.

9



---



##### Table of Contents



Information concerning operations in these reportable segments of business is
as follows:

|                                             |  |                              |        |            |  |            |        |              |  |           |        |              |  |       |        |  |  |   |         |   |  |   |         | 
|-------------------------------------------- |  | ---------------------------- | ------ | ---------- |  | ---------- | ------ | ------------ |  | --------- | ------ | ------------ |  | ----- | ------ |  |  | - | ------- | - |  | - | ------- | 
|                                             |  | Quarter Ended March 31, 2002
|                                             |  |                             
|                                             |  |                              |        |            |  |            |        |              |  | Decision  |        |              |  |       |        |  |  |   |         |   |  |  
|                                             |  |                              |        |            |  | ATM        |        | Support and  |  |           |        |              |  |       |        |  |  |   |         |  
|                                             |  | Electronic                   |        | Management |  | Risk       |        | Professional |  |           |        |              |  | Total
|(dollars in thousands)                       |  | Payments                     |        | Services   |  | Management |        | Services     |  | Corporate |        | Consolidated
|                                             |  |                              |        |            |  |            |        |              |  |           |        |             
|Net revenue                                  |  | $                            | 46,507 |            |  | $          | 20,640 |              |  | $         | 36,825 |              |  | $     | 29,525 |  |  | $ |        |   |  | $ | 133,497 | 
|                                            
|                                            
|                                            
|                                            
|Operating
expenses before net special items  |  |                              | 34,124 |            |  |            | 19,254 |              |  |           | 29,584 |              |  |       | 18,879 |  |  |   | 20,174  |   |  |   | 122,015 | 
|                                            
|                                            
|                                            
|                                            
|Operating income excluding
net special items |  |                              | 12,383 |            |  |            | 1,386  |              |  |           | 7,241  |              |  |       | 10,646 |  |  |   | (20,174 | ) |  |   | 11,482  | 
|                                            
|                                            
|                                            
|                                            
|Net special items                            |  |                              |       |            |  |            |       |              |  |           |       |              |  |       |       |  |  |   |        |   |  |   |        | 
|                                            
|                                            
|                                            
|                                            
|Operating income including
net special items |  |                              | 12,383 |            |  |            | 1,386  |              |  |           | 7,241  |              |  |       | 10,646 |  |  |   | (20,174 | ) |  |   | 11,482  | 

|                                             |  |                                                |        |            |  |            |        |              |  |           |        |              |  |       |        |  |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | ---------------------------------------------- | ------ | ---------- |  | ---------- | ------ | ------------ |  | --------- | ------ | ------------ |  | ----- | ------ |  |  | - | ------- | - |  | - | ------- | -
|                                             |  | Quarter Ended March 31, 2001 (as reclassified)
|                                             |  |                                               
|                                             |  |                                                |        |            |  |            |        |              |  | Decision  |        |              |  |       |        |  |  |   |         |   |  |  
|                                             |  |                                                |        |            |  | ATM        |        | Support and  |  |           |        |              |  |       |        |  |  |   |         |  
|                                             |  | Electronic                                     |        | Management |  | Risk       |        | Professional |  |           |        |              |  | Total
|(dollars in thousands)                       |  | Payments                                       |        | Services   |  | Management |        | Services     |  | Corporate |        | Consolidated
|                                             |  |                                                |        |            |  |            |        |              |  |           |        |             
|Net revenue                                  |  | $                                              | 45,197 |            |  | $          | 16,580 |              |  | $         | 37,223 |              |  | $     | 31,620 |  |  | $ |        |   |  | $ | 130,620 |  
|                                            
|                                            
|                                            
|                                            
|Operating expenses before
net special items  |  |                                                | 33,499 |            |  |            | 16,562 |              |  |           | 27,292 |              |  |       | 20,222 |  |  |   | 23,805  |   |  |   | 121,380 |  
|                                            
|                                            
|                                            
|                                            
|Operating income excluding
net special items |  |                                                | 11,698 |            |  |            | 18     |              |  |           | 9,931  |              |  |       | 11,398 |  |  |   | (23,805 | ) |  |   | 9,240   |  
|                                            
|                                            
|                                            
|                                            
|Net special items                            |  |                                                |       |            |  |            |       |              |  |           | (3,200 | )            |  |       |       |  |  |   |        |   |  |   | (3,200  | )
|                                            
|                                            
|                                            
|                                            
|Operating income including
net special items |  |                                                | 11,698 |            |  |            | 18     |              |  |           | 6,731  |              |  |       | 11,398 |  |  |   | (23,805 | ) |  |   | 6,040   |  

The Company has not disclosed assets by segment as this information is not
reviewed by the chief operating decision maker, is not produced internally and
it is not practical to prepare it.

Revenue is attributed to geographic areas based on the location of the assets
producing the revenue. The Companys operations by geographic area are as
follows:

|                        |                    |      |                         |         |                        |      |              |         |  |   |        |        |  |   |        |        | 
|----------------------- | ------------------ | ---- | ----------------------- | ------- | ---------------------- | ---- | ------------ | ------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                        |                    |      | Total Net Revenue       |         | Property and Equipment
|                        |                    |      | Quarter Ended March 31, |         |                       
|                        |                    |      |                         |         | March 31,              |      | December 31,
|(dollars in thousands)  |                    | 2002 |                         | 2001    |                        | 2002 |              | 2001   
|                        |                    |      |                         |         |                        |      |              |        
|United States           |                    | $    | 120,872                 |         |                        | $    | 119,848      |         |  | $ | 62,263 |        |  | $ | 64,687 |       
|                       
|                       
|                       
|                       
|United Kingdom          |                    |      | 4,751                   |         |                        |      | 5,091        |         |  |   | 1,591  |        |  |   | 1,736  |       
|                       
|                       
|                       
|                       
|India                   |                    |      | 6,000                   |         |                        |      | 5,681        |         |  |   | 8,586  |        |  |   | 8,950  |       
|                       
|                       
|                       
|                       
|Other foreign countries |                    |      | 1,874                   |         |                        |      |             |         |  |   | 322    |        |  |   | 265    |       
|                        |                    |      |                         |         |                        |      |              |         |  |   |        |        |  |   |        |       
|                        | Total consolidated |      | $                       | 133,497 |                        |      | $            | 130,620 |  |   | $      | 72,762 |  |   | $      | 75,638 | 
|                        |                    |      |                         |         |                        |      |              |         |  |   |        |        |  |   |        |       

Note 11  Commitments and Contingencies:
In connection with the Companys government services, collection and ATM
placement activities, the Company posts surety bonds with state agencies
guaranteeing its performance of certain obligations related to the relevant
contracts or state requirements. The aggregate amount of such bonds outstanding
at March 31, 2002 was $7.9 million.

The Company has guaranteed certain equipment lease payments for its Canadian
customers of ACI totaling $2.0 million as of March 31, 2002. Through March 31,
2002, the Company has been required to make payments of $59,000 pursuant to
these guarantees.

10



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In December 2001, the Company entered into a subscription agreement to acquire
a 15% interest in Webtel Pty. Ltd., an Australian corporation (Webtel).
Pursuant to the subscription agreement, the Company invested $1.3 million in
Webtel in 2001 and has committed to invest an additional $0.8 million upon the
satisfaction of certain conditions specified in the subscription agreement.

The Company has approximately $1.5 million in time deposits, denominated in
Indian rupees, primarily for securing letters of credit issued in the ordinary
course of business by its India operations. At March 31, 2002, the aggregate
amount of such outstanding letters of credit was approximately $0.1 million.

An Indian bank has issued an advance guarantee on behalf of the Company to
secure its performance under a customer contract. The guarantee is secured by a
time deposit of $0.9 million.

The Company operates a call center in Mumbai, India under a customer contract.
The customer receives credits toward a right to purchase, after December 31,
2002, a minority interest in, or sole ownership of, certain assets used by the
Company in performing call center operations for the customer as well as
transition assistance. The customers right to acquire ownership rights in the
assets is determined by a formula that is driven primarily by revenue. As of
March 31, 2002, the customer was entitled to acquire less than a 5% ownership
interest. This call center generated revenue of $4.3 million and $3.7 million
for the three months ended March 31, 2002 and 2001, respectively, and $16.5
million during the entire year of 2001.

On March 8, 2002, the Company received a letter from a Staff Accountant at the
Central Regional Office of the Securities and Exchange Commission (the SEC)
stating that the SEC is conducting an inquiry of the Company and requesting the
Companys voluntary assistance in connection with the provision of certain
documents relating to our 2001 financial results and certain transactions
between the Company and ACI, among other things. The letter from the SEC
states that the inquiry is non-public and that it should not be construed as an
indication that the SEC believes any violation of law has occurred. The Company
intends to cooperate fully with the SEC in resolving this matter.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the notes to those financial statements
included in this Quarterly Report on Form 10-Q and our 2001 Annual Report on
Form 10-K filed with the Securities & Exchange Commission.

Forward-Looking Statements

In addition to historical and pro forma information, this Quarterly Report
contains forward-looking statements as defined in the U.S. Private Securities
Litigation Reform Act of 1995. All forward-looking statements are subject to
various risks and uncertainties that could cause actual results to differ
materially from those described in the statements. The factors that could cause
actual results to differ include those discussed in Item 5 of this Quarterly
Report.

Overview

eFunds Corporation and its wholly-owned subsidiaries (the Company, we or
us) provide transaction processing, risk management and professional
services to financial institutions, retailers, electronic funds transfer
networks, e-commerce providers and government agencies. The Company has four
operating segments: electronic payments; automated teller machine (ATM)
management services; decision support and risk management; and professional
services. The electronic payments segment provides automated clearinghouse
(ACH), point of sale (POS) electronic funds transfer (EFT), and other
processing services across multiple financial networks and electronic benefits
transfer (EBT) services for government agencies. The ATM management services
segment provides ATM deployment, management and branding services. The decision
support and risk management segment provides risk management based data and
other products to financial institutions, retailers and other businesses that
assist in detecting fraud and assessing the risk of opening a new account or
accepting a check. The professional services segment provides EFT software
sales, software applications development, maintenance and
installation, and
business process outsourcing services.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates and judgments,
including those related to revenue recognition, intangible assets, accrued
contract losses, bad debts, income taxes and stock-based compensation. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. The results of these
estimates form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:

Revenue recognition  Our net revenues consist of transaction processing and
service fees, decision support fees, software licensing, maintenance and
support fees, government service fees, and information

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technology consulting and business process management services fees. Our
revenue recognition policies for these various fees are as follows:



| |  | Transaction processing and service fees are recognized in the period
that the service is performed. These services consist of processing
our customers electronic debit transactions through electronic funds
transfer networks and settling the funds with the financial
institutions involved in the transactions. Additionally, these
services include monitoring ATMs and point-of-sale devices to alert
our customers when potential problems occur. These fees are charged on
a per transaction basis, depending on the contractual arrangement with
the customer. We also receive fees paid by consumers utilizing ATM
machines owned or managed by us and fees paid by their banks for
interchange services. Government services fees are recognized in the
period services are provided based on monthly fees per benefits
recipient.                       
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
| |  | Decision support fees are recognized as revenue in the period the
services are provided. Decision support services consist of new
account applicant and check verification screenings to manage the risk
associated with account openings and check acceptance. Decision
support fees are based on the number of inquiries against the
databases used for screening purposes or monthly fees based on the
aggregate dollar value of checks authorized by the retailer or other
similar measures, depending on the product and service.                                                                                                                                                                                                                                                                                                                                
| 
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
| |  | Software license fees for standard software products are recognized
when a license agreement has been signed, the license fee is fixed and
determinable, collectibility of the license fee is probable, delivery
has occurred and there are no uncertainties surrounding product
acceptance. If a software license contains customer acceptance
criteria for which significant uncertainties exist, the software
revenue is recognized upon the earlier of customer acceptance or the
expiration of the acceptance period. Certain software products include
multiple modules and the license fee charged to the customer is based
on the modules licensed. If a customer contract requires we deliver
multiple elements, the fees are allocated to the various elements
based upon vendor-specific objective evidence of fair value.                                 
| 
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
| |  | We also provide professional services consisting of information
technology consulting and business process management services.
Recognition of revenue from providing such services is generally
recognized under two methods, depending on contractual terms. Under
the time and materials method, which is relevant to nearly all of our
professional services contracts, revenue is based on a fee per hour
basis and is recognized as hours are completed. Under the fixed
contract method, a pre-set fee is agreed upon for a project, and
revenue is recognized proportionately to the percentage completion of
the project. If the information technology consulting services involve
the significant customization of software that has been licensed from
us, the license fee is also recognized proportionately to the
percentage completion of the project.
| 
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
| |  | Software maintenance and support revenue is recognized ratably over
the term of the contract, and/or as the services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

The process involved in evaluating the appropriateness of revenue recognition
involves judgments about vendor-specific objective evidence of fair value,
collectibility of fees, and projections of costs to complete projects for our
customers.

Intangible Assets  Our intangible assets consist primarily of goodwill,
capitalized software costs and acquired customer contracts. We capitalize the
cost of software developed or obtained for internal use once the preliminary
project stage has been completed, management commits to funding the project and
it is probable that the project will be completed and that the software will be
used to perform the function

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intended. Capitalized costs include only (1) external direct costs of materials
and services consumed in developing or obtaining internal-use software, (2)
payroll and payroll-related costs for employees who are directly associated
with and who devote time to the internal-use software project, and (3) interest
costs incurred, when material, while developing internal-use software.
Capitalization of costs ceases when the project is substantially complete and
the software is ready for its intended use.

We capitalize the cost of software developed for licensing and resale once
technological feasibility has been established. Costs incurred prior to
establishing technological feasibility are expensed as incurred. Technological
feasibility is established when we have completed all planning, designing,
coding and testing activities that are necessary to determine that a product
can be produced to meet its design specifications, including functions,
features and technical performance requirements. Capitalization of costs ceases
when the product is available for general release to customers. Such costs are
amortized on a product-by-product basis over no longer than five years.
Software developed for resale is carried at the lesser of amortized cost or net
realizable value.

The process of evaluating goodwill and other intangible assets, including
capitalized software costs and customer contract costs, for impairment involves
judgments about market conditions and economic indicators, estimates of future
cash flows and assumptions about our strategic plans with regard to our
operations. To the extent additional information arises or our strategies
change, it is possible that our conclusions regarding the carrying value of our
intangible assets could change and materially affect our financial position or
results of operations.

Reserves and Allowances  We maintain a reserve for expected future losses on
certain electronic benefit transfer contracts. Our estimates of such losses are
based on a variety of assumptions including assumptions about future welfare
case levels, number of transactions per case and costs related to processing
transactions and support services. These assumptions are subject to significant
uncertainties and may differ substantially from our estimates. In the event
such differences arise, a revision to the loss contract reserve would be
required. Any such revision could have a material effect on our financial
position or results of operations.

We maintain an allowance for doubtful accounts for estimated losses resulting
from our customers failing to make required payments. We develop our estimate
of the allowance based on our experience with specific customers, our
understanding of their current economic circumstances and our own judgment as
to the likelihood of their ultimate payment. We also consider our collection
experience with the balance of our receivables portfolio and make estimates
regarding collectability based on trends in aging. If the financial condition
of our customers were to deteriorate, thereby impairing their ability to make
payments, additional allowances may be required.

Income Taxes  We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. Although we
have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we will be able to realize our deferred tax
assets in the future in excess of the net recorded amount, an adjustment to the
deferred tax asset would increase income in the period any such determination
was made. Likewise, should we determine that we would not be able to realize
all or part of our net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period any such
determination was made.

We consider the undistributed earnings of our foreign subsidiaries to be
permanently invested and, accordingly, we have not provided for U.S. Federal,
state income or applicable foreign withholding taxes on those amounts. Upon any
distribution of those earnings in the form of dividends or otherwise, we would
be subject to both U.S. income taxes (subject to an adjustment for foreign tax
credits) and

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applicable withholding taxes payable to the foreign countries. Determination of
the amount of unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with such a hypothetical
calculation.

Results of Operations  Quarter ended March 31, 2002 Compared to Quarter Ended
March 31, 2001

The following table presents, for the periods indicated, the relative
composition of net revenues and selected statements of operations data as a
percentage of net revenues:

|                           |                                             |                    |                          |      |                         |      |      |      |       |      | 
|-------------------------- | ------------------------------------------- | ------------------ | ------------------------ | ---- | ----------------------- | ---- | ---- | ---- | ----- | ---- | 
|                           |                                             |                    |                          |      | Quarter Ended March 31,
|                           |                                             |                    |                          |      |                        
|                           |                                             |                    |                          |      | 2002                    |      | 2001
|                           |                                             |                    |                          |      |                         |      |     
|Net revenue                |                                             |                    |                          |      |                         |      |      |     
|                          
|                          
|                          
|                          
|                           | Electronic payments                         |                    |                          | 34.8 | %                       |      |      | 34.6 | %    
|                          
|                          
|                          
|                          
|                           | ATM management services                     |                    |                          | 15.5 |                         |      |      | 12.7 |      
|                          
|                          
|                          
|                          
|                           | Decision support and risk management        |                    |                          | 27.6 |                         |      |      | 28.5 |      
|                          
|                          
|                          
|                          
|                           | Professional services                       |                    |                          | 22.1 |                         |      |      | 24.2 |      
|                           |                                             |                    |                          |      |                         |      |      |     
|                           |                                             | Total net revenues |                          |      | 100.0                   |      |      |      | 100.0 |     
|                           |                                             |                    |                          |      |                         |      |      |     
|Operating expenses         |                                             |                    |                          |      |                         |      |      |     
|                          
|                          
|                          
|                          
|                           | Processing, communication and service costs |                    |                          | 38.4 |                         |      |      | 37.3 |      
|                          
|                          
|                          
|                          
|                           | Employee costs                              |                    |                          | 38.2 |                         |      |      | 39.6 |      
|                          
|                          
|                          
|                          
|                           | Depreciation and amortization               |                    |                          | 7.2  |                         |      |      | 7.5  |      
|                          
|                          
|                          
|                          
|                           | Other operating expenses                    |                    |                          | 7.6  |                         |      |      | 8.6  |      
|                          
|                          
|                          
|                          
|                           | Special charges                             |                    |                          |     |                         |      |      | 2.4  |      
|                           |                                             |                    |                          |      |                         |      |      |     
|                           |                                             |                    | Total operating expenses |      |                         | 91.4 |      |      |       | 95.4 | 
|                           |                                             |                    |                          |      |                         |      |      |     
|Income from operations     |                                             |                    | 8.6                      |      |                         |      | 4.6  |     
|                           |                                             |                    |                          |      |                         |      |      |     
|Other income-net           |                                             |                    | 0.3                      |      |                         |      | 0.4  |     
|                           |                                             |                    |                          |      |                         |      |      |     
|Income before income taxes |                                             |                    | 8.9                      |      |                         |      | 5.0  |     
|                          
|                          
|                          
|                          
|Provision for income taxes |                                             |                    | (3.0                     | )    |                         |      | (1.9 | )   
|                           |                                             |                    |                          |      |                         |      |      |     
|Net income                 |                                             |                    | 5.9                      | %    |                         |      | 3.1  | %   
|                           |                                             |                    |                          |      |                         |      |      |     

Net revenue Net revenue increased $2.9 million, or 2.2%, to $133.5 million in
the first quarter of 2002 from $130.6 million in the first quarter of 2001.

Electronic payments net revenue increased $1.3 million, or 2.9%, to $46.5
million in the first quarter of 2002 from $45.2 million in the first quarter of
2001. Our EBT revenues increased due to the renewal of certain government
contracts at improved rates and an increased caseload volume. Excluding the
impact of EITF 01-14 (see Accounting Changes in notes to financial statements),
revenues from ACH, POS, EFT and other processing decreased slightly due to the
expected revenue declines associated with the STAR network we experienced
during the first quarter of 2002 as compared to the comparable period last
year. Transaction processing volumes, exclusive of transactions related to EBT
services and STAR, increased approximately 21% during the first quarter of 2002
compared to the same period in 2001 while revenues from these processing
services, increased by approximately 7.8 percent over the first quarter of last
year. The increase in processing revenues is not directly proportional to the
increase in processing volumes because processing activities with lower unit
prices increased substantially more than those processing activities with
higher unit prices.

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Although we continue to pursue EBT contracts where we can obtain them on a
profitable basis, we expect to see a decline in the revenues of the government
services segment in 2002 if our Medicaid eligibility verification contract with
the state of New York is not renewed. This contract provided us $2.9 million
of revenue in the first quarter of 2002 and is scheduled to expire at the end
of October 2002. It is possible that we may receive further extensions of this
agreement, but we are unable to predict whether we in fact will receive any
such extensions. No other EBT contracts are scheduled to expire until the
fourth quarter of 2002 (at which time a contract that generated $1.8 million of
revenue in 2001 is scheduled to expire), although all of our government
services contracts are terminable by the contracting governmental entity at any
time.

ATM management services revenue increased $4.0 million, or 24.1%, to $20.6
million in the first quarter of 2002 from $16.6 million in the first quarter of
2001. The increase is primarily due to the acquisition of the ATM-related
assets of Hanco Systems, Inc., which contributed $3.2 million in new revenue
during the first quarter of 2002. Branding and equipment sales revenue also
increased in the first quarter of 2002 compared to the same quarter of the
prior year as these activities did not contribute material amounts of revenues
in the first quarter of 2001. We currently manage a network of approximately
11,000 ATMs. We are actively seeking to acquire the ATM portfolios of other
independent ATM deployment and management companies.

Decision support and risk management revenue decreased $0.4 million, or 1.1%,
to $36.8 million in the first quarter of 2002 from $37.2 million in the first
quarter of the prior year. Revenues from SCAN(SM), our retail check
verification service, have declined primarily due to additional retail
bankruptcies. This decrease was offset by revenue growth in our
ChexSystems(SM) products in both volume and higher value product mix due to a
response by financial institutions to an expected mandate by the U.S.
government for better customer screening under the USA Patriot Act.

Revenues from professional services decreased $2.1 million, or 6.6%, to $29.5
million in the first quarter of 2002 from $31.6 million in the first quarter of
the prior year. Revenue from information technology services provided under our
contract with Deluxe declined from $12.5 million in the first quarter of 2001
to $10.3 million in the first quarter of 2002. If Deluxe fails to spend a
minimum of $43 million for software development services under our software
development and business process outsourcing agreement with it in any year, it
will be obligated to make payments to us based on a schedule in the contract
that is reflective of an estimate of our lost profits. Although Deluxe had
previously indicated to us that it expects to purchase software development
services from us in 2002 at approximately the $43 million level contemplated by
our outsourcing agreement with it, we currently anticipate that 2002 revenues
from software development activities performed pursuant to this agreement will approximate $39 million. The provision of services by
us under this software development and business process outsourcing agreement
is non-exclusive, and Deluxe may contract with any third party for the
provision of professional services. Revenues from other information technology
clients declined by $3.2 million in the first quarter of 2002 as compared to
the same period for the prior year as a result of our decision in 2001 to cease
providing stand-alone information technology development services. This
decline in information technology services activity was offset by increased
software sales in the first quarter of this year. The following table
illustrates our revenue generated from software sales:

|                       |  |                         |        |      |  |   |       | 
|---------------------- |  | ----------------------- | ------ | ---- |  | - | ----- | 
|                       |  | Quarter Ended March 31,
|                       |  |                        
|(dollars in thousands) |  | 2002                    |        | 2001
|                       |  |                         |        |     
|License fees           |  | $                       | 7,699  |      |  | $ | 3,085 | 
|                      
|                      
|                      
|                      
|Maintenance            |  |                         | 3,417  |      |  |   | 3,200 | 
|                      
|                      
|                      
|                      
|Software modifications |  |                         | 1,416  |      |  |   | 3,125 | 
|                       |  |                         |        |      |  |   |       | 
|                       |  | $                       | 12,532 |      |  | $ | 9,410 | 
|                       |  |                         |        |      |  |   |       | 

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Business process management (BPM) revenues also declined in the first quarter
of 2002 as compared to the same period for the prior year due to a reduction in
services for Deluxe. Our agreement with Deluxe calls for us to provide Deluxe
with accounts receivable, accounts payable and other general accounting and
data entry services. Deluxes annual minimum spending target for these
services ranges from $8.1 million in 2000 to $4.2 million in 2004. The target
for 2002 is $6.4 million and revenues from these services were $1.2 million in
the first quarter of this year. The decline in revenues from Deluxe was offset
by increased revenue from other BPM customers and our call center activities.

Processing, communication and service costs This category includes cost of
processing, telecommunications, computer equipment and promotional services.
These costs increased $2.6 million, or 5.3%, to $51.3 million in the first
quarter of 2002 from $48.7 million in the same period of the prior year. As a
percentage of net revenue, processing, communication and service costs were
38.4% in the first quarter of 2002 compared to 37.3% for the same period of
2001. Telecommunications, third party processing charges and cost of equipment
sales have increased along with the increase in ATM processing and ATM
equipment sales. Currently, we provide the processing for approximately 5,100
of the 11,000 ATM machines in our network and we expect to complete the
transition of the processing for the remaining 4,800 of our U.S. ATMs to our
networks by the end of the year. Due to existing contractual commitments,
processing for the approximately 1,100 ATMs we have in Canada will
not likely be
transitioned to our networks for a substantial period of time. Reimbursable
costs, the majority of which related to transaction processing, that are billed
to customers also increased in the first quarter of 2002 compared to the same
period of the prior year due to increased transaction volumes.

Employee costs Expenditures in this category represent employee compensation
and related employee expenses, benefits and travel. These costs decreased $0.7
million, or 1.4%, to $51.0 million in the first quarter of 2002 from $51.7
million in the first quarter of 2001. As a percentage of net revenue, employee
costs were 38.2% in the first quarter of 2002, compared to 39.6% for the first
quarter of 2001. Although we had approximately 200 more employees in the first
quarter of 2002 than we did in the first quarter of 2001, due in part to the
addition of ACI employees, we experienced cost savings by re-deploying certain
development responsibilities to our India based operations and as a result of
initiatives begun in 2001 such as the consolidation of our data center
operations. Additionally, our travel expenditures were less in the first
quarter of 2002 compared to the same period of the prior year.

Depreciation and amortization These costs represent depreciation of
facilities and equipment, amortization of intangible assets, such as
capitalized software costs and customer contract costs, and, prior to
implementation of SFAS 142 in 2002, amortization of goodwill. Depreciation and
amortization decreased $0.3 million, or 3.1%, to $9.5 million in the first
quarter of 2002 from $9.8 million for the first quarter of 2001. As a
percentage of revenue, these costs were 7.2% in the first quarter of 2002 and
7.5% for the same period of the prior year. Approximately $1 million of
amortization of goodwill and $0.3 million of equity method investment
amortization in connection with the initial investment in ACI was recorded in the first quarter of 2001, whereas no
such amortization was recorded in 2002. This decrease was offset by
more depreciation of property and equipment, more amortization of internally
developed software, and amortization of customer contracts recorded in
connection with the purchase of ACI.

Other operating expenses Expenditures in this category include facility
costs, professional, consulting and temporary services, bad debt, and certain
administrative costs. Other operating expenses decreased $1.0 million, or
8.9%, to $10.2 million for the first quarter in 2002 compared to $11.2 million
for the same period of the prior year. As a percentage of revenue, these
expenses decreased to 7.6% in the first quarter of 2002 from 8.6% for the first
quarter in 2001. We experienced significant savings in consulting and
temporary services in the first quarter of 2002 as compared to the same period
of the prior year, due to a decreased reliance on contract labor. This
savings was offset slightly by an increase in facility rental costs due to the
expansion of our facilities in India and in Scottsdale, and by an increase in
insurance costs.

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Income from operations Income from operations increased $5.5 million, or
91.7%, to $11.5 million in the first quarter of 2002 compared to $6.0 million
in the first quarter of 2001. As a percentage of net revenue, income from
operations was 8.6% for the first quarter in 2002 compared to 4.6% for the same
period of the prior year. A majority of this increase is due to the $3.2
million special charge we recorded in the first quarter of 2001 for severance
and lease costs related to the closure of our operations in Bothell,
Washington. There were no similar charges for the first quarter of 2002.
Also, in accordance with SFAS 142, we stopped amortizing goodwill in the first
quarter of 2002. Goodwill amortization for the same period of the prior year
was approximately $1 million. Excluding the charge for the closure of Bothell
operations and the elimination of amortization of goodwill, income from
operations increased approximately $1.3 million, or approximately 13%. As a
percentage of revenue, income from operations, excluding special charges and
goodwill amortization in the first quarter of 2001, increased to 8.6% in the
first quarter of 2002 from 7.8% in the same period of the prior year. The
improvement is attributable to our continued cost savings initiatives and a
slightly higher percentage of software sales during the first quarter of 2002
compared to the same period of the prior year.

Other income-net Other income-net was $0.4 million during the first quarter
of 2002 compared to $0.5 million for the same period of the
prior year. Interest earned on cash and cash equivalents decreased $1.0 million to $0.3 million in the first quarter of 2002
compared to $1.3 million for the same period of the prior year.
The decrease was offset by a decrease of $0.2 million in
interest expense, $0.3 million in equity method amortization,
and $0.4 million in other expenses, from the same period of the
prior year.

Provision for income taxesThe provision for income taxes was $4.0 million in
the first quarter of 2002 compared to $2.5 million in the first quarter of 2001
resulting in effective tax rates of 34.0% and 38.0%, respectively. The decrease
in our effective tax rate is a result of increased earnings by our Indian
subsidiary. Our Indian software development and business process management
operations qualify for tax incentives associated with businesses that operate
within designated geographic locations. Such incentives generally provide us
with exemptions from Indian income tax on certain business income generated
from these operations. As a result of a recent change in Indian tax law,
effective April 1, 2002 and through March 31, 2003, 10% of this previously tax
exempt income will be subject to Indian income tax at the rate of 35%. We do
not expect that this change will have a significant impact on our effective tax
rate for 2002. The remaining tax incentives phase out through March 2009.

Liquidity, Capital Resources, and Financial Condition

At March 31, 2002, net working capital was $120.6 million, compared to $118.6
million at December 31, 2001. Cash and cash equivalents, including cash in
ATMs of approximately $20 million, totaled $104.3 million at March 31, 2002, an
increase of $2.5 million from December 31, 2001. This cash was generated
primarily from operating activities. At March 31, 2002, we had $3.8 million of
restricted cash that we temporarily hold in custodial accounts on behalf of
clients.

Our operations and our capital expenditure requirements are financed primarily
through cash flow from operations. Short term liquidity needs and long term
capital expenditure requirements of approximately $40 million for 2002 will be
provided from cash and cash equivalents on hand and cash flow from operations.

We have a $20 million revolving credit facility with a bank. As of March 31,
2002 no loans were outstanding under this facility. From time to time we issue
letters of credit in the ordinary course of business under this facility. At
March 31, 2002 the aggregate value of such outstanding letters of credit
amounted to $1.0 million. Loans under this facility will bear interest at the
applicable prime rate or the LIBOR rate plus a margin determined by reference
to the Companys leverage ratio. The facility is guaranteed by certain of the
Companys subsidiaries and requires the Company to comply with certain
financial and non-financial covenants. The Company is currently in compliance
with these requirements.

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We have additional outstanding commercial commitments consisting mainly of
guarantees for contract performance, that include letters of credit, bank
guarantees and performance bonds. As of March 31, 2002 and December 31, 2001,
our total obligation under these commercial commitments was $10.9 million and
$11.5 million, respectively, over a five-year term. As of December 31, 2001 our
contractual cash obligations for capital and operating leases and outsourcing
and maintenance obligations totaled $128.3 million through December 31, 2006.
Our contractual cash obligations had not materially changed from this amount at
March 31, 2002.

The following table sets forth a summary of our cash flow activity and should
be read in conjunction with our unaudited consolidated statements of cash
flows:

|                                                     |  |                         |         |      |  |   |        |  
|---------------------------------------------------- |  | ----------------------- | ------- | ---- |  | - | ------ | -
|                                                     |  | Summary of Cash Flows  
|                                                     |  | Quarter Ended March 31,
|                                                     |  |                        
|(dollars in thousands)                               |  | 2002                    |         | 2001
|                                                     |  |                         |         |     
|Cash provided by (used in) operating activities      |  | $                       | 17,892  |      |  | $ | (2,253 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Cash used in investing activities                    |  |                         | (16,790 | )    |  |   | (9,077 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Cash provided by financing activities                |  |                         | 1,349   |      |  |   | 3,072  |  
|                                                     |  |                         |         |      |  |   |        |  
|Net increase (decrease) in cash and cash equivalents |  | $                       | 2,451   |      |  | $ | (8,258 | )
|                                                     |  |                         |         |      |  |   |        |  

Net cash flows from operating activities provided $17.9 million and used $2.3
million for the quarters ended March 31, 2002 and 2001, respectively. The
increase in operating cash flow compared to the same quarter last year resulted
from greater operating income and effective management of working capital
accounts. During the quarter ended March 31, 2002, accounts receivable
decreased by $3.3 million, whereas accounts receivable increased by $19.1
million for the same quarter of the prior year. The increase last year was due
to the growth of our Company and also because billings to Deluxe were shown as
receivables in 2001 as opposed to intercompany balances at
December 31, 2000.

Our investing activities used cash of $16.8 million for the quarter ended March
31, 2002, compared to $9.1 million for the same quarter last year. We spent
$5.4 million to purchase systems, equipment and software in the first quarter
of 2002, compared to like capital expenditures of $9.1 million in the same
quarter last year. We also purchased substantially all of the ATM-related
assets of Hanco for $11.4 million in the first quarter of 2002.

Financing activities provided $1.3 million and $3.1 million in cash for the
quarters ended March 31, 2002 and 2001, respectively. During the quarter ended
March 31, 2002, we repaid $0.8 million of long-term debt and received $2.1
million from sales of common stock pursuant to exercise of stock options and
the employee stock purchase plan. During the same period of the
prior year, we used cash to repay debt of $5.8 million and obtained $8.5
million from the release of a time deposit placed as collateral for this debt.

Recent Developments

Acquisition of Samsar ATM Co., Inc.  During May 2002, we acquired all of the
outstanding stock of Samsar ATM Co., Inc. (Samsar), an independent ATM
deployment and management company for approximately $3.3 million in cash.
Samsar managed a network of approximately 1,000 ATMs located primarily in the
northwestern U.S. We are actively pursuing the acquisition of the ATM
portfolios of other independent ATM deployment and management companies.

Transactions with STAR  In 2001, Concord EFS acquired the STAR debit network,
formerly our largest transaction processing customer, and notified us that it
intended to terminate STARs processing agreement with us and perform the
processing for this network at its own data centers. As part of the transition
of this activity, STAR licensed our EFT software and contracted for the
long-term maintenance

19



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thereof and for professional services to assist in the migration effort. The
licenses to STAR represented our largest software licensing transactions to
date. The transition of the processing for the STAR network to Concord EFS is
currently scheduled to be completed by the fourth quarter of 2002. Concord EFS
will pay us fixed monthly fees for the transaction processing we will perform
for the STAR network during the transition period and we expect to see the
revenues from our relationship with STAR decline substantially from historical
levels in future periods. Including software license and maintenance fees and
fees for processing transactions for STAR and other Concord affiliates, Concord
EFS accounted for approximately $11.4 million of net revenues during the
quarter ended March 31, 2002, or approximately 8.5% of our total net revenues
in that quarter, as compared to $9.9 million for the quarter ended March 31,
2001. We currently estimate that the total net revenues we will recognize from
our relationship with Concord EFS in 2002 will approximate $28 million,
compared to $56.2 million in 2001. Of this amount, approximately $16 million
relates to the provision of transaction processing services to the
STAR network during the
transition period ($6 million of which was recognized during the first quarter
of 2002 and the balance of which will be recognized approximately ratably over
the second and third quarters).Approximately $4 million of the 2002 revenues
relates to a software sale also recognized during the first quarter. We do not
expect the remaining revenues from Concord EFS affiliate Primary Payment
Systems, Inc. to be affected by the termination of STARs processing agreement.

Government Services  We have recently been informed that we have been awarded
the prime EBT contracts for the states of Alabama and Missouri. The contract
with Alabama will commence in June 2002 and we believe the Missouri agreement
will commence in January 2003. When fully operational, these relationships are
expected to generate an aggregate of approximately $4.5 million in annual
incremental revenues over the amounts we received from these states in 2001 as
our role changes from subcontractor to prime contractor. We have also recently
been informed that Citibank has been awarded the EBT contract for the Western
States EBT Alliance (Arizona, Alaska, Colorado, Guam, Hawaii, Idaho and
Washington). We currently act as a subcontractor to Citibank for this alliance
and this relationship generated approximately $4.8 million in revenues in 2001.
We expect that, as a result of Citibank being awarded this EBT contract, our
role as a subcontractor will be discontinued. We do not presently anticipate
that this transition will have a material impact on our business in 2002 or
2003 as our significant contracts for this coalition will not begin to roll-off
until 2004.

Forward Looking Statements



| |  | We have previously announced that we are targeting revenues of approximately
$624 million for the full year. This amount includes approximately $28
million of revenue associated with the adoption by the Company of EITF
01-14.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating income is expected to be approximately 12 to 14 percent of 2002
revenue.                                                                                                                                               
|
| |  | The effective tax rate for 2002 is expected to be approximately 34 percent.                                                                                                                                                      
|
| |  | Net income is expected to approximate $1.18 per diluted share.                                                                                                                                                                   
|
| |  | 2002 diluted shares are assumed to be 47.9 million.                                                                                                                                                                              
|
| |  | Second quarter revenues are expected to be approximately $139 million to
$145 million, including approximately $7.0 million attributable to the
adoption of EITF 01-14.                                                          
|
| |  | Diluted earnings per share for the second quarter are expected to
approximate $0.24 to $0.26.                                                                                                                                    

20



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| |  | Our actual future results could differ materially from those presently
anticipated due to a variety of factors. Some of these factors are
discussed in Part II, Item 5 of this Quarterly Report.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. We operate internationally and are
subject to potentially adverse movements in foreign currency exchange rates and
interest rates. These exposures may change over time as the business evolves
and could have an adverse impact on our financial results. We have not entered
into any derivative instruments or hedging contracts to reduce our exposure to
adverse foreign currency rate or interest rate changes.

Currently, we receive non-U.S. dollar denominated revenues and incur non-U.S.
dollar denominated operating expenses in the United Kingdom and India. We also
have assets located in these countries. The principal currencies creating
foreign exchange rate risk for us are the British pound and Indian rupee. For
the quarter ended March 31, 2002, less than 10% of our net revenues and
operating expenses were denominated in non-U.S. dollar currencies. We estimate
that our net income for the quarter ended March 31, 2002 would not have been
materially affected if the U.S. dollar had appreciated or depreciated by 10%
against the British pound or the Indian rupee.

Changes in interest rates could impact our anticipated interest income on cash
equivalents and interest expense on variable short-term debt. A 10% adverse
change in interest rates from the interest rates in effect at the end of 2001
would not, however, have a material adverse effect on our net income or
financial condition for 2002.

21



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PART II  OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

On March 8, 2002, we received a letter from a Staff Accountant at the Central
Regional Office of the Securities and Exchange Commission (the SEC) stating
that the SEC is conducting an inquiry of us and requesting our voluntary
assistance in connection with the provision of certain documents relating to
our 2001 financial results and certain transactions between us and ACI, among
other things. The letter from the SEC states that the inquiry is non-public
and that it should not be construed as an indication that the SEC believes any
violation of law has occurred. We intend to cooperate fully with the SEC in
resolving this matter. We may, however, be the subject of additional inquiries
or become subject to a fine or other liabilities.




ITEM 5. OTHER INFORMATION

RISK FACTORS AND CAUTIONARY STATEMENTS.

When used in this Quarterly Report on Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in our press releases,
letters and reports to stockholders and in oral statements made by our
representatives, the words or phrases should result, are expected to,
targeted, will continue, will approximate, is anticipated, estimate,
project or similar expressions are intended to identify forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are necessarily subject to certain risks and
uncertainties, including those discussed below that could cause our actual
results to differ materially from our historical experience and our present
expectations or projections. Caution should be taken not to place undue
reliance on any such forward-looking statements, which speak only as of the
date made. The factors listed below could affect our financial performance and
could cause our actual results for future periods to differ from any opinions
or statements expressed with respect thereto. Such differences could be
material and adverse. We will not undertake and specifically decline any
obligation to publicly release the result of any revisions that may be made to
any forward-looking statements to reflect events or circumstances occurring
after the date of such statements or to reflect the occurrence of anticipated
or unanticipated events.

ESTIMATES OF FUTURE FINANCIAL RESULTS ARE INHERENTLY UNRELIABLE.

From time to time, our representatives make public predictions or forecasts
regarding the Companys future results, including estimates regarding future
revenues, expense levels, earnings or earnings from operations. Any forecast
regarding our future performance reflects various assumptions. These
assumptions are subject to significant uncertainties, and, as a matter of
course, many of them will prove to be incorrect. Further, the achievement of
any forecast depends on numerous factors (including those described in this
discussion), many of which are beyond our control. As a result, there can be no
assurance that our performance will be consistent with any management forecasts
or that the variation from such forecasts will not be material and adverse.
Investors are cautioned not to base their entire analysis of our business and
prospects upon isolated predictions, but instead are encouraged to utilize the
entire available mix of historical and forward-looking information made
available by us, and other information relating to our Company and its
products, when evaluating our prospective results of operations.

The Company is currently reviewing its business plan and guidance for the
balance of 2002. We are currently targeting total 2002 revenues of $624 million
and earnings per diluted share of $1.18. Our revenues for the first quarter of
this year were $133.5 million, with diluted earnings per share of $0.16.

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We presently anticipate revenues in the second quarter will approximate $139
million to $145 million and that our earnings in this quarter will approximate
$0.24 to $0.26. If we achieve our second quarter goals, which is not assured,
our revenues for the first six months of 2002 would be between $272.5 million
and $278.5 million. Our diluted earnings per share for this period would
approximate $0.40 to $0.42. As a result, the achievement of our 2002 goals
will require substantial revenue growth and earnings during the last six months
of the year over our predicted performance for the first half of 2002. This
growth must be achieved through the expansion of existing customer and product
relationships, the initiation of new customer and product relationships and the
purchase of additional ATM assets. If we are unsuccessful in retaining and
expanding our relationships with our existing customers or if our newer product
and service offerings do not achieve the expected levels of market acceptance
or if their sales cycles are longer than we anticipate, we will not achieve our
targeted revenue or earnings goals for 2002. Our revenue and earnings
objectives may also not be achieved if additional ATM assets do not become
available upon prices and terms we consider reasonable or if these acquisitions
take longer to conclude than we presently expect.

In addition, our representatives may occasionally comment publicly on the
perceived reasonableness of published reports by independent analysts regarding
our projected future performance. Such comments should not be interpreted as an
endorsement or adoption of any given estimate or range of estimates or the
assumptions and methodologies upon which such estimates are based. Undue
reliance should not be placed on any comments regarding the conformity, or lack
thereof, of any independent estimates with our own present expectations
regarding its future results of operations. The methodologies employed by us in
arriving at our own internal projections and the approaches taken by
independent analysts in making their estimates are likely different in many
significant respects. Although we may presently perceive a given estimate to be
reasonable, changes in our business, market conditions or the general economic
climate may have varying effects on the results obtained through the use of
differing analyses and assumptions. We expressly disclaim any continuing
responsibility to advise analysts or the public markets of our view regarding
the current accuracy of the published estimates of outside analysts. Persons
relying on such estimates should pursue their own independent investigation and
analysis of their accuracy and the reasonableness of the assumptions on which
they are based.

CONSOLIDATION IN THE INDUSTRIES WE SERVE MAY ADVERSELY AFFECT OUR ABILITY TO
SELL OUR PRODUCTS AND SERVICES.

Mergers, acquisitions and personnel changes at financial institutions and
electronic funds transfer networks may adversely affect our business, financial
condition and results of operations. Currently, the banking and EFT industries
are consolidating, causing the number of financial institutions and ATM
networks to decline. This consolidation could cause us to lose:



| |  | current and potential customers;                                                                                                                                                    
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | market share if the combined entity determines that it is more efficient to
develop in-house products and services similar to ours or use our competitors
product and services; and
| 
| |  | revenue if the combined institution is able to negotiate a greater volume
discount for, or discontinue the use of, our products and services.                                       

For example, one of the larger customers of our electronic payments business,
the STAR network, has been purchased by one of our competitors, Concord EFS. We
currently estimate that the total net revenues we will recognize from our
processing relationship with the STAR network in 2002 will approximate $16
million. Approximately $6 million of this amount was realized in the first
quarter and the balance will be
recognized roughly ratably in the second and third quarters. We do not expect
to realize material revenues from this relationship during the fourth quarter
of 2002 or thereafter.

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WE ARE UNABLE TO PREDICT THE RESULTS OF THE INQUIRY WE HAVE RECEIVED FROM THE
SEC.

On March 8, 2002, we received a letter from a Staff Accountant at the Central
Regional Office of the Securities and Exchange Commission (the SEC) stating
that the SEC is conducting an inquiry of us and requesting our voluntary
assistance in connection with the provision of certain documents relating to
our 2001 financial results and certain transactions between us and ACI, among
other things. The letter from the SEC states that the inquiry is non-public
and that it should not be construed as an indication that the SEC believes any
violation of law has occurred. We intend to cooperate fully with the SEC in
resolving this matter. We may, however, be the subject of additional inquiries
or become subject to a fine or other liabilities. It is also possible that the
SEC could require us to revise our previously reported results of operations.
The existence of the uncertainty associated with this inquiry could also have a
depressing effect on the market price of our common shares.

OUR ACQUISITION OF ACI MAY NOT BE SUCCESSFUL.

In October 2001, we acquired the remaining equity interests in Access Cash
International, L.L.C. (ACI), a limited liability company in which we
previously held a 24% interest. ACI was the second largest independent ATM
service provider in the United States, with over 8,400 owned or managed ATMs.
ACI provides turnkey ATM deployment solutions, including ATM sales and
management as well as branding and advertising services. ACIs revenues are
received from the fees paid by consumers utilizing the deployed ATM machines
and interchange fees paid by their banks and from the sale of ATMs.

In recent years, ACI has operated at a loss. Continued improvement in the
future will depend upon our ability to effectively integrate ACIs operations
into our organization, to efficiently manage the deployment of the ATMs and to
generate additional revenues from the installed ATM base and the sale of new
machines. No assurance can be given that we will be successful in these
efforts. If we are not successful in our effort to improve the revenues and
profitability of ACI, our future results of operations will be adversely
affected. In addition, the expansion of the installed base of ATMs may require
the application of increased amounts of cash to keep the machines appropriately
supplied with cash for withdrawal by consumers. Regulations are currently being
considered regarding the application of the Americans with Disabilities Act to
ATM networks. Although any regulations could result in increased opportunities
for ATM sales by us, they could also require us to retire or retrofit portions
of the ATM base we own. It is also possible that existing ATM networks will be
exempted from any future regulations. We are unable at this time to determine
whether, and to what extent, any final regulations will impact our business.

WE FACE INTENSE COMPETITION IN ALL AREAS OF OUR BUSINESS, AND IF WE DO NOT
COMPETE EFFECTIVELY, OUR BUSINESS WILL BE HARMED.

We face intense competition from a number of companies. Further, we expect that
competition will intensify as the movement towards increasing consolidation
within the financial services industry continues. Many of our competitors have
significantly greater financial, technical and marketing resources, greater
name recognition and a larger installed customer base than we do.

In the electronic payment management market, our principal competitors include:



| |  | third party network and credit card processors, including First Data,
Equifax, Total System Services, Electronic Data Systems, Concord EFS and
Alliance Data Systems;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

24



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| |  | financial institutions that have developed internal processing capabilities
or services similar to ours, including Bank of America, Metavante and Fifth
Third National Bank;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | electronic data interchange and cash management providers, including Fiserv,
CheckFree, Metavante, EDS and Fundtech;                                                        
| 
| |  | electronic bill payment providers, including CheckFree, EDS, MasterCard,
Spectrum and Visa;                                                                                 
| 
| |  | electronic funds transfer software providers, including Transaction Systems
Architects, SLMsoft, Oasis, Mosaic and PaySys; and                                              
| 
| |  | national information database companies and other content providers,
including Equifax, Experian and Trans Union.                                                           

In the market for electronic transaction processing, the principal factors on
which we compete are price and service levels. The future growth of our
revenues in this market is dependent upon securing an increasing volume of
transactions. If we cannot control our transaction processing expenses, we may
not remain price competitive and our revenues will be adversely affected.

Competition for our decision support and risk management products is based
primarily on the quantity and quality of the data available to us for this
purpose and, to a somewhat lesser degree, price. Our competitive position in
these markets could be harmed if our competitors were able to compile different
data sources and analytical capabilities that proved to be more effective than
our products. In addition, competitive pressure on our check verification
business is increasing and may require us to make significant investments to
maintain our customer base and acquire new customers.

Our business process outsourcing and professional services offerings compete
primarily on the basis of the quality of service levels and, to some degree,
price. The future growth of this aspect of our business is dependent on
demonstrating to our current and prospective customers that we are a dependable
and efficient service provider.

In addition to our current competitors, we expect substantial competition from
established and new companies. No assurance can be given that the Company will
be able to compete effectively against current and future competitors.
Increased competition could result in price reductions, reduced gross margins
or loss of market share.

IF WE FAIL TO DEVELOP AND INTRODUCE NEW AND ENHANCED PRODUCTS AND SERVICES, WE
WILL NOT BE ABLE TO COMPETE EFFECTIVELY AND OUR ABILITY TO GENERATE REVENUES
WILL SUFFER.

Our success will depend in part on our ability to continue to develop and
introduce new and enhanced payment and risk management products and services
that keep pace with competitive introductions, technological changes and
changing customer preferences. If we fail to anticipate or respond adequately
to new developments, we may lose opportunities for business with both current
and potential customers.

For example, we have announced that we are developing products and services
that bundle various combinations of our transaction processing, risk management
and professional services offerings into higher-value integrated product sets.
We are continuing to pursue the initial market opportunities
available to us for these offerings. If we are not successful in developing and
selling these enhanced products and services, our future growth expectations
could be diminished.

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IF WE EXPERIENCE SYSTEM FAILURES, THE PRODUCTS AND SERVICES WE PROVIDE TO OUR
CUSTOMERS COULD BE DELAYED OR INTERRUPTED, WHICH WOULD HARM OUR BUSINESS AND
REPUTATION AND RESULT IN THE LOSS OF CUSTOMERS.

Our ability to provide reliable service largely depends on the efficient and
uninterrupted operations of our computer and telecommunications network systems
and our data centers. Any significant interruptions could severely harm our
business and reputation and result in a loss of revenue and customers. Our
systems and operations could be exposed to damage or interruption from fire,
natural disaster, unlawful acts, power loss, telecommunications failure,
unauthorized entry and computer viruses. Although we have taken steps to
prevent system failures, we cannot be certain that our measures will be
successful and that we will not experience service interruptions. Further, our
property and business interruption insurance may not be adequate to compensate
us for all losses or failures that may occur.

LEGISLATION RELATING TO CONSUMER PRIVACY PROTECTION COULD HARM OUR ABILITY TO
COLLECT AND USE DATA, INCREASE OUR OPERATING COSTS OR OTHERWISE HARM OUR
BUSINESS.

Existing and new laws and regulations relating to consumer privacy protection
could harm our ability to collect and use consumer data, increase our operating
costs or otherwise harm our business. We collect personal data about consumers
for use in our decision support and risk management products. Due to the
increasing public concern over consumer privacy rights, Congress and state
legislatures have adopted and are considering adopting laws and regulations
restricting the purchase, sale and sharing of personal information about
consumers. For example, some states have restricted the sale of motor vehicle
records, including drivers license lists, and some states refuse to disclose
this information at all.

The federal financial modernization law, known as the Gramm-Leach-Bliley Act,
imposes significant new consumer information privacy requirements on any entity
engaged in the business of providing financial services, including entities
that provide services to financial institutions. Federal agencies, such as the
Comptroller of the Currency and the Federal Trade Commission, have issued
regulations to implement these requirements. The Act requires covered companies
to develop and implement policies to protect the security and confidentiality
of consumers nonpublic personal information and to disclose those policies to
consumers before a customer relationship is established and annually
thereafter. In addition, the Act requires covered companies to give an opt-out
notice to consumers before sharing consumer information with third parties. The
opt-out notice requirement in the Act is subject to several exceptions for
credit reporting and fraud prevention purposes. Although we believe these
exceptions apply to our business, government agencies could interpret their
regulations in a manner that could expand the scope of the Act in ways which
could adversely affect our business. In addition, even if the regulations do
not affect us directly, uncertainty over the scope of the regulations could
make financial institutions unwilling or reluctant to share consumer-related
information with us.

The Gramm-Leach-Bliley Act does not prohibit state legislation or regulations
that are more restrictive on our collection and use of data. More restrictive
legislation or regulations have been introduced in the past and could be
introduced in the future in Congress and the states. For example, in the past
legislation has been proposed which would require consumers to opt in to any
plan which would allow their nonpublic personal information to be disclosed. We
are unable to predict whether more restrictive legislation or regulations will
be adopted in the future. Any future legislation or regulations could have a
negative impact on our business.

IF THE SECURITY OF OUR DATABASES IS COMPROMISED, OUR REPUTATION COULD SUFFER
AND CUSTOMERS MAY NOT BE WILLING TO USE OUR PRODUCTS AND SERVICES.

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If the security of our databases is compromised, our business could be
materially adversely affected. In our electronic payments business, we collect
personal consumer data, such as names and addresses, social security numbers,
drivers license numbers, checking and savings account numbers and payment
history records. Unauthorized access to our database could result in the theft
or publication of personal confidential information and the deletion or
modification of personal records or otherwise cause interruptions in our
operations. These concerns about security are increased when we transmit
information over the Internet. A security or privacy breach may:



| |  | deter customers from using our products and services;                          
|- |  | -------------------------------------------------------------------------------
| 
| |  | harm our reputation;                                                           
| 
| |  | expose us to liability;                                                        
| 
| |  | increase our operating expenses to remediate problems caused by the breach;
and
| 
| |  | decrease market acceptance of electronic commerce transactions in general.     

WE ARE DEPENDENT ON DELUXE FOR A SIGNIFICANT PORTION OF OUR REVENUE.

During the first quarter of 2002, net sales to Deluxe represented 8.6% of our
total net revenues. On a year-over-year basis, however, total revenues from
Deluxe declined by 20.1% to $11.5 million during the first quarter of 2002 from
$14.4 million during the comparable period in 2001. Although Deluxe has
established minimum spending targets of $43 million per year through March 31,
2005 for software development and maintenance services from us, we currently
expect that it will purchase approximately $39 million of software development
and maintenance services from us in 2002. Further efforts at expense reduction
by Deluxe could cause the revenues we receive from Deluxe to continue to
decline. The loss of Deluxe as a customer or a continuing material reduction in
the amount of services it orders from us would materially adversely affect our
future results of operations and financial condition.

WE MAY EXPERIENCE SOFTWARE DEFECTS, DEVELOPMENT DELAYS AND INSTALLATION
DIFFICULTIES, WHICH WOULD HARM OUR BUSINESS AND REPUTATION AND EXPOSE US TO
POTENTIAL LIABILITY.

Our services and products are based on sophisticated software and computing
systems and we often encounter delays when developing new products and
services. Further, the software underlying our products and services has
occasionally contained and may in the future contain undetected errors or
defects when first introduced or when new versions are released. In addition,
we may experience difficulties in installing or integrating our products and
technologies on platforms used by our customers or in new environments, such as
the Internet. Defects in our software products, errors or delays in the
processing of electronic transactions or other difficulties could result in:



| |  | delay in market acceptance;                
|- |  | -------------------------------------------
| 
| |  | additional development costs;              
| 
| |  | diversion of technical and other resources;
| 
| |  | loss of customers;                         

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| |  | negative publicity; or       
|- |  | -----------------------------
| 
| |  | exposure to liability claims.

Although we attempt to limit our potential liability for warranty claims
through disclaimers and limitation-of-liability provisions in our license and
client agreements, we cannot be certain that these measures will be successful
in limiting our liability.

OUR ATTEMPTS TO EXPAND BY MEANS OF ACQUISITIONS AND STRATEGIC ALLIANCES MAY NOT
BE SUCCESSFUL.

Tax requirements related to our Spin-Off from Deluxe will restrict our ability
to complete significant acquisitions through the issuance of our common stock.
Further, our ability to expand in this manner, including through our
acquisition of ACI, Hanco and other ATM providers, involves many risks,
including:



| |  | the operations, technology and personnel of any acquired companies may be
difficult to integrate;                               
|- |  | --------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the allocation of resources to consummate these transactions may disrupt our
business;                                          
| 
| |  | acquired businesses may not achieve anticipated revenues, earnings or cash
flow;                                                
| 
| |  | strategic alliances may not be successful or we may not realize anticipated
benefits in a timely manner, or at all; and         
| 
| |  | our relationships with existing customers and business partners may be
weakened or terminated as a result of these transactions.

THERE ARE A NUMBER OF RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES AND
OPERATIONS THAT COULD HARM OUR BUSINESS.

Because we currently sell some of our products and services in Europe,
Australia and South and Latin America, our business is subject to risks
associated with doing business internationally. Also, we may not be successful
in selling our services outside of the United States. In the first quarter of
2002, we generated approximately 9.5% of our net sales outside of the United
States. Our future results could be harmed by a variety of factors, including:



| |  | changes in foreign currency exchange rates;                                                                     
|- |  | ----------------------------------------------------------------------------------------------------------------
| 
| |  | changes in a specific countrys or regions political and economic
conditions, particularly in emerging markets;
| 
| |  | potentially unfavorable tax rules;                                                                              
| 
| |  | tariffs, duties and other trade barriers;                                                                       
| 
| |  | reduced protection for intellectual property rights;                                                            
| 
| |  | challenges in managing widespread operations;                                                                   
| 
| |  | changes in foreign laws and regulatory requirements or in foreign policy;
and                                   

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| |  | varying business practices in foreign countries.
|- |  | ------------------------------------------------

CHANGES IN INDIAN TAX LAWS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Our Indian software development and business process management operations
qualify for tax incentives associated with businesses which operate within
designated geographic locations. These incentives generally provide us with
exemptions from Indian tax on certain business income generated from these
operations and phase out through March 2009. We cannot assure you that these
tax benefits will be continued in the future at their current levels or at all.
For example, the Indian tax laws were changed, effective April 1, 2002 through
March 31, 2003, to subject 10% of our previously tax exempt income to a 35%
tax. If our Indian tax benefits are further reduced or eliminated, our taxes
in future periods would likely increase.

OUR GOVERNMENT SERVICES BUSINESS HAS HISTORICALLY NOT BEEN PROFITABLE AND
DELUXES INDEMNIFICATION MAY NOT BE ADEQUATE.

In 2000, 1999 and 1998 we incurred loss contract charges that represent
probable future losses from unprofitable long-term service contracts and the
write-off of assets associated with our government services business. The
losses on the long-term service contracts result from the revenues from the
contracts being lower than expected and the expenses to service the contracts
being higher than anticipated. The assets associated with the government
services business were written off because this business has a negative overall
cash flow and its assets have no resale value.

Deluxe has agreed to indemnify us for future losses arising from any litigation
based on the conduct of the business prior to our initial public offering and
future losses on identified loss contracts in excess of estimates underlying
our $29.2 million loss contract reserves as of April 30, 2000. This
indemnification obligation does not apply to losses contemplated by the
existing reserve and is subject to a $14.6 million limit. In addition, Deluxes
indemnification does not apply to any contract that was not in a loss position
as of April 30, 2000 and so if any of these profitable contracts were to become
unprofitable, no indemnification would be available. Our loss contract reserves
are based on estimates of the future performance of identified contracts, and
the estimated results may not be realized. As a result, we may incur losses
beyond our current reserves and Deluxes indemnification. For example, a
reduction in the number of welfare recipients below our current expectations
could increase our projected future losses. These excess losses would be
recognized in future periods and decrease our earnings for those future
periods.

WE FACE TERMINATION AND COMPLIANCE RISKS WITH RESPECT TO OUR GOVERNMENT
CONTRACTS.

All of our government contracts can be terminated at any time, without cause,
by the contracting governmental entity. We realized 9.8% of our net sales in
the first quarter of 2002 pursuant to contracts of this type. If a government
contract is so terminated, the contractor generally is entitled to receive
compensation only for the services provided or costs incurred at the time of
termination and a reasonable profit on the contract work performed prior to the
date of termination. In addition, all of our government contracts require us to
comply with various contract provisions and procurement regulations, and in
some cases, accounting requirements. Violations of some of these provisions
could, if not cured, result in termination of the contract and fines.

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There may be a decline in the revenues of the government services segment as
existing contracts expire. Our Medicaid eligibility verification contract with
the state of New York has been extended through October 2002. The approximate
annual revenue from this contract is $11.9 million. New York has the option to
further extend this contract after October 2002. There can be no assurance that
New York will exercise any of its extension options. If it does not, the
revenues we derive from our government services business will be reduced.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

Despite our efforts to protect our intellectual property rights, third parties
may infringe or misappropriate our intellectual property rights, or otherwise
independently develop substantially equivalent products and services. The loss
of intellectual property protection or the inability to secure or enforce
intellectual property protection could harm our business and ability to
compete. We rely on a combination of trademark and copyright laws, trade secret
protection and confidentiality and license agreements to protect our
trademarks, software and know-how. We have also applied for patent protection
on some of the features of our newer products. We may be required to spend
significant resources to protect our trade secrets and monitor and police our
intellectual property rights.

Third parties may assert infringement claims against us in the future. In
particular, there has been a substantial increase in the issuance of business
process patents, which may have broad commercial implications. Claims for
infringement of all types of patents are becoming an increasing source of
litigation. If we become subject to an infringement claim, we may be required
to modify our products, services and technologies or obtain a license to permit
our continued use of those rights. We may not be able to do either of these
things in a timely manner or upon reasonable terms and conditions. Failure to
do so could seriously harm our business and operating results. In addition,
future litigation relating to infringement claims could result in substantial
costs to us and a diversion of management resources. Adverse determinations in
any litigation or proceeding could also subject us to significant liabilities
and could prevent us from using some of our products, services or technologies.

THERE ARE TAX RISKS ASSOCIATED WITH THE SPIN-OFF.

Deluxe has received confirmation from the Internal Revenue Service that, for
U.S. federal income tax purposes, the spin-off of our Company from Deluxe was
generally tax-free to Deluxe and to its shareholders. This confirmation was
premised on a number of representations and undertakings made by us and Deluxe
to the Internal Revenue Service, including representations with respect to each
companys intention not to engage in certain transactions in the future. The
Spin-Off may be held to be taxable to Deluxe and to its shareholders who
received our shares if the Internal Revenue Service determines that any of the
representations made were incorrect or untrue in any respect, or if any
undertakings made are not complied with. If, notwithstanding the confirmation
of the Internal Revenue Service, the Spin-Off is held to be taxable, both
Deluxe and its shareholders who received our shares could be subject to a
material amount of taxes. We will be liable to Deluxe for any such taxes
incurred by Deluxe to the extent such taxes are attributable to specific
actions or failures to act by us, or to specific transactions involving us
following the Spin-Off. In addition, we will be liable to Deluxe for a portion
of any taxes incurred by Deluxe if the Spin-Off fails to qualify a tax-free as
a result of a retroactive change of law or other reasons unrelated to the
action or inaction of either us or Deluxe.

Deluxe generally has sole authority to respond to and conduct all tax
proceedings and tax audits relating to our operations prior to the Spin-Off and
to file all related returns on our behalf. Our tax sharing agreement with
Deluxe also determines the amount of our liability to, or entitlement to
payment from, Deluxe with regard to taxes and tax refunds for these periods.
This arrangement may result in conflicts
between Deluxe and us. Under the tax-sharing agreement, Deluxe may choose to
contest, compromise or

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settle any adjustment or deficiency proposed by the
relevant taxing authority in a manner that may be beneficial to Deluxe and
detrimental to us.

TAX LIMITATIONS ON ISSUANCE OF OUR SHARES WILL RESTRICT OUR ABILITY TO
UNDERTAKE ACQUISITIONS.

We may be limited in the amount of shares that we can issue because the
issuance of our shares may cause the Spin-Off to be taxable to Deluxe under
Section 355(e) of the Internal Revenue Code. As a result of such possible
adverse tax consequences, we may be restricted in our ability to effect certain
acquisitions or to enter into other transactions that would result in a change
of control of our company.

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW AND TAX CONSIDERATIONS
RELATED TO THE SPIN-OFF MAY DELAY OR PREVENT A CHANGE IN CONTROL.

Provisions of our certificate of incorporation and bylaws and Delaware law may
delay or prevent a change in control of our company that you may consider
favorable. These provisions include the following:



| |  | no cumulative voting by stockholders for directors;                                                                                                                                                                         
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a classified board of directors with three-year staggered terms;                                                                                                                                                            
| 
| |  | the ability of our board to set the size of the board of directors, to
create new directorships and to fill vacancies;                                                                                                      
| 
| |  | the ability of our board to issue preferred stock, without stockholder
approval, with rights and preferences that may be superior to our common stock;                                                                      
| 
| |  | the ability of our board to amend the bylaws;                                                                                                                                                                               
| 
| |  | a prohibition of stockholder action by written consent;                                                                                                                                                                     
| 
| |  | advance notice requirements for stockholder proposals and for nominating
candidates to our board;                                                                                                                           
| 
| |  | restrictions under Delaware law on mergers and other business combinations
between us and any holder of 15% or more of our outstanding common stock; and                                                                    
| 
| |  | a requirement that 66-2/3% of our stockholders and 66-2/3% of our directors
approve certain corporate transactions, including mergers and consolidations,
sales of assets or amendments to our certificate of incorporation.

In addition we have adopted a stockholder rights plan, which discourages the
unauthorized acquisition of 15% or more of our common stock or an unauthorized
exchange or tender offer. Our tax sharing agreement with Deluxe also provides
that we will indemnify Deluxe for any taxes due if the Spin-Off or some of the
related transactions fail to qualify as tax-free because of our actions or
inactions. An acquisition of us by a third party could have such an effect. As
a result, these tax considerations may delay or prevent a third party from
acquiring us in a transaction you may otherwise have considered favorable or
reduce the amount you receive as part of the transaction.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

The following exhibits are filed as part of this report:

|            |  |                                                                                                                                                                                                                                                                                       |  |                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                           |  | Method of Filing
|            |  |                                                                                                                                                                                                                                                                                       |  |                 
|2.1         |  | Asset Purchase Agreement, dated as of January 31, 2002, by
and between Access Cash International L.L.C. and Hanco
Systems, Inc.                                                                                                                                                       |  | Filed herewith  
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                       |  |                 
|           
|           
|           
|           
|3.1         |  | Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 (the S-1) filed by the
Company with the Securities and Exchange Commission (the
Commission) on April 4, 2000, Registration No.
333-33992).) |  | *               
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                       |  |                 
|           
|           
|           
|           
|3.2         |  | Bylaws (incorporated by reference to Exhibit 3.2 to the S-1)                                                                                                                                                                                                                          |  | *               
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                       |  |                 
|           
|           
|           
|           
|4.1         |  | Form of common stock certificate (incorporated by reference
to Exhibit 4.1 to Amendment No. 1 to the S-1 filed by the
Company with the Commission on May 15, 2000 (Amendment No.
1), Registration No. 333-33992)                                                                    |  | *               
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                       |  |                 
|           
|           
|           
|           
|4.2         |  | Form of Rights Agreement by and between the Company and
Rights Agent, (incorporated by reference to Exhibit 4.2 to
Amendment No. 1)                                                                                                                                                   |  | *               
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                       |  |                 
|           
|           
|           
|           
|4.3         |  | Certificate of Designation of Series A Participating
Preferred Stock (incorporated by reference to Exhibit 4.3
to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000)                                                                                    |  | *               
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                       |  |                 
|           
|           
|           
|           
|10.1        |  | Retention Incentive Agreement, dated March 20, 2000, by and
between the Company and Colleen M. Adstedt                                                                                                                                                                                |  | Filed herewith  

*Incorporated by reference

(a)  Reports on Form 8-K

The Company filed a report on Form 8-K on March 6, 2002. An exhibit to this
report contained the following financial statements:



| |  |  | Consolidated Balance Sheets of eFunds Corporation at December
31, 2001 and 2000                                                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Consolidated Statements of Operations of eFunds Corporation of the years ended December
31, 2001, 2000 and 1999                  
|
| |  |  | Consolidated Statements of Comprehensive Income (Loss) of eFunds Corporation for the
years ended December 31, 2001, 2000 and 1999
|
| |  |  | Consolidated Statements of Stockholders Equity of eFunds
Corporation at December 31, 2001, 2000 and 1999                        
|
| |  |  | Consolidated Statements of Cash Flows of eFunds Corporation for the years
ended December 31, 2001, 2000, and 1999                

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |  |                                                                                                                      
|------------------ |  | ---------------------------------------------------------------------------------------------------------------------
|                   |  | eFunds Corporation
(Registrant)                                                                                      
|                  
|                   |  |                                                                                                                      
|                  
|                   |  |                                                                                                                      
|                  
|Date: May 15, 2002 |  | /s/ J. A. Blanchard IIIJ. A. Blanchard III,
Chief Executive Officer and Chairman
(Principal Executive Officer)       
|                  
|                   |  |                                                                                                                      
|                  
|                   |  |                                                                                                                      
|                  
|Date: May 15, 2002 |  | /s/ Paul H. BristowPaul H. Bristow
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

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Index to Exhibits

|            |  |                                                                                                                                 |  |             |  | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | 
|Exhibit No. |  | Description                                                                                                                     |  | Page Number
|            |  |                                                                                                                                 |  |            
|2.1         |  | Asset Purchase Agreement, dated as of January
31, 2002, by and between Access Cash
International L.L.C. and Hanco Systems, Inc.
|           
|           
|           
|           
|            |  |                                                                                                                                
|           
|           
|           
|           
|10.1        |  | Retention Incentive Agreement, dated March
20, 2000, by and between the Company and
Colleen M. Adstedt                         

34